Print Edition - 2018-12-16 | MONEY
EU leaders sign off watered down eurozone reform
Dec 16, 2018-
French President Emmanuel Macron barnstormed to power in 2017, promising to inject the European project—and especially the euro single currency—with much-needed oomph.
On Friday, EU leaders will sign-off on the fruit of that campaign, a laundry list of highly complex reforms to better protect the euro from another crisis.
The measures plainly fall short of Macron’s grand ambition, undone by a dithering Germany and the unexpected resistance of a determined band of mostly northern countries led by the Netherlands.
The reforms, summarised below, are much watered down from the original plan, with a highly tentative proposal to explore a eurozone budget the only change that Macron can sell back home.
The flagship idea, presented by Macron in 2017, of a specific budget for the 19 countries of the single currency has been considerably squeezed.
Sceptical countries, led by the Netherlands, have agreed only to discuss incorporating the idea as a small slice of the EU budget of the full 27 (post Brexit) member nations.
The budget’s main objective will be to help along politically painful reforms and to help deliver greater economic convergence between the 19 countries using the euro.
Germany refused to agree the “stabilisation” budget sought by France, in which funds could assist a country hit by an unexpected economic shock (such as Ireland in the event of a chaotic Brexit).
Despite the narrow scope, France will hail a symbolic victory. An easier sell was strengthening the power of the European Stability Mechanism (ESM), the euro zone firefighter, created in 2012 in the heat of the debt crisis.
The ESM is governed by the 19 eurozone finance ministers—also known as the Eurogroup—and uses national cash to raise funds on the markets which it then grants in bailout loans to crisis-hit countries in return for closely scrutinised reforms.
Eager to take on new responsibilities, the Luxembourg-based ESM has been granted greater powers to assess the economic and financial situation of the euro area countries.
This potentially puts it on a collision course with the European Commission, which does much the same in Brussels, though with less oversight from national capitals, to the frustration of some fiscally conservative ministers In the end, the commission will continue to hold the reins in the yearly monitoring of member spending plans, but will have “regular meetings” with the ESM.
In the reforms, countries that have finances on an overall good footing but have a sudden liquidity problems will also be able to tap into the war chest and not in return for a raft of painful reforms (such as was the case for Greece).
These changes require amending the existing ESM treaty, a process that will require more wrangling and could take much of next year.
Completing the banking union—launched in 2012—is a central challenge for EU leaders, but the last missing piece is the toughest.
The creation of a European-wide deposit insurance scheme, known as EDIS, has been bitterly opposed by Berlin for years in the belief that Germany would be on the hook to save fragile banks allegedly spendthrift countries such as Greece and Italy.
Published: 16-12-2018 08:45