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16 November 2015

Reforming the EU and Completing the Economic and Monetary Union

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News headlines about the EU are dominated by the migration crisis but it cannot detract from the importance of securing the economic and financial stability of the Eurozone, and thus the EU as a whole.

If that stability is lost, the consequences will dwarf the undoubted social dislocations flowing from migration.

So it is regrettable that so little attention has been paid to the announcement of proposals for profound “reform”. The Commission published its proposals for “A deeper and fairer Single Market”. This should be seen as a vindication of the UK’s demands for reform in the EU’s single market. Prime Minister Cameron is pushing at a wide-open door! The proposal covers:

  • Consumers: when buying goods or services – online or face to face – they should not face “diverging prices, sales conditions, or delivery options,” without genuine reasons.
  • SMEs and start-ups are to be assisted in financing by Capital Markets Union. Crucially, the Commission will publish a proposal for business insolvency – a key problem for CMU.
  • Professionals: improved opportunities for businesses and professionals to cross borders, especially by recognition of professional qualifications.

Co-incidentally (or perhaps not), the bulk of the necessary legislation should be announced during 2016 so the EU will be able to point to a major wave of economic `reform’ during the Brexit referendum debate. As George Osborne said in his recent Berlin speech “We want Britain to remain in a reformed European Union.”  However, there is another wave of `reform’ that many Conservative back-benchers may not welcome so much: a further round of deepening and integration within the eurozone. To quote Osborne’s Berlin speech again “In the end the inexorable logic of monetary union will mean the treaties will have to be changed to support the financial and economic union required for a permanently stronger euro — the stronger euro we want you to build.”

In a decade, it is entirely foreseeable that only a few euro non-members. The “inexorable logic” has been well underway since the Greek crisis of 2010 and is now poised to push forward rapidly in the decade to 2025.

Since the original Four Presidents report of June 2012, the inability of the EU banking sector to fund economic growth has become a major source of concern and the concept of a Capital Market Union has come to the fore as potentially a major contribution to growth.  (See earlier articles and STS in this edition) The Five Presidents’ Report in June laid out a two-stage process to completing EMU by 2025, and the Commission’s October Communication added much detail to the Report’s principles.

In particular, this made a clear link between the improvement of democratic accountability and the development of financial integration. “...the European Parliament should organise itself to assume its role in matters pertaining especially to the euro area... However, as the euro area evolves towards a genuine EMU, some decisions will increasingly need to be made collectively while ensuring democratic accountability and legitimacy… A future euro-area treasury could be the place for such collective decision-making.”

The Five Presidents Report of June 2015 set some ambitious goals as well as a clear timetable. Swamped by migrant stories, the media has hardly reported this and even European Council meetings have barely focussed on it – except to authorise continued work.

Stage 1 from July 2015 – June 2017 as a period of ‘deepening by doing’.

Stage 2 (`completing EMU’) should run from July 2017 to 2025 at the latest, and include `concrete measures of a more far-reaching nature…for each euro area Member State to participate in a shock absorption mechanism for the euro area.’ Thus a fiscal stabilisation function for the euro area is envisaged

(Note: Graham Bishop has proposed a Plan for a Temporary Eurobill Fund as an explicit Stepping Stone to Stage 2.  The plan[1]provides a concrete mechanism to:

  • Bind the euro area into economic policy co-ordination and convergence; deepen the financial integration inherent in CMU; and buttress financial stability.
  • Be initiated in Stage 1 as a modest stepping stone; be scaled up in Stage 2 towards becoming a de facto European Treasury with Communautaire political governance – perhaps even providing a modest `fiscal capacity’.
  • Be easily reversed (even to extinction) within two years.)

The October 2015 “Communication on steps towards Completing Economic and Monetary Union” set out some concrete steps for achieving Stage 1. In reality, the `Completing EMU’ proposals would extend the existing concept of co-decision making from legislation fully into the economic governance of the euro area as a whole, and its member states. Key concepts include:

  • A Revamped European Semester by implementing country-specific recommendations
  • Promoting convergence by benchmarking and pursuing best practices
  • More focused support to reforms through EU funds and technical assistance - utilising the principle of so-called macroeconomic conditionality for all five European Structural and Investment Funds
  • Improving the toolbox of economic governance: Improving transparency and reducing complexity of the current fiscal rules
  • A stronger Macroeconomic Imbalances Procedure.



[1]This Plan has been developed by Graham Bishop since 2012. More at


© Graham Bishop

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