The Conference on the Future of Europe: completing Economic and Monetary Union

The launch of the Conference on the Future of Europe has not received sufficient media coverage, even though it was one of the announcements made by President Ursula von der Leyen when presenting the programme for her current term of office. What is questionable is its relevance, both in terms of EU progress and in terms of citizens' perception of their role in the process.

Progress in economic integration has often taken place before the European institutional framework is ready to cope with the needs of economic integration. This was the case when the Treaty of Rome was signed and the European Common Market was created. It was not until the early 1990s, after the Single Act, that it was possible to lay the foundations for all the elements (capital mobility, free movement of goods, no non-tariff barriers) to function properly in what came to be known as the Internal Market. It was no different with Economic and Monetary Union (EMU). 

The financial crisis that began in 2007 revealed EMU's vulnerabilities in the face of an "asymmetric shock" and even the asymmetric effects of a crisis that was not only global in nature, but which affected the very foundations of the European financial system. The response to this crisis was slow and, moreover, involved taking decisions that contradicted what had been agreed until then on the functioning of EMU. Neither the ECB Statute nor the Maastricht Treaty had taken into account situations that could lead to bailouts (starting with Greece) or Draghi's announcement in 2012 that he would "do whatever is necessary". Nevertheless, the "unorthodox" monetary policy measures taken at the time were sound and indeed in line with the mandate in a broad sense, as it preserved monetary union. The changes adopted were based more on fault-finding and intergovernmental solutions than on moving towards common policies that would address the shortcomings. In fact, the constitutions of the Eurozone countries were amended before the Treaties themselves were amended. 

The financial crisis revealed, on the one hand, the weaknesses in EMU governance and, on the other, that it was incomplete, since banking union and fiscal union were essential elements for balancing political agreement with the needs of economic functioning. 

From the governance point of view, it is undeniable that between 2011 and 2012 the Stability and Growth Pact (SGP) was strengthened by designing fiscal policy measures (the six-pack, followed by the two-pack, as well as the Treaty on Stability, Coordination and Governance or TSCG). This served to include, in addition, other indicators of macroeconomic imbalances, incorporating, alongside the deficit and accumulated public debt, other variables whose evolution can be monitored, such as unemployment, the current account balance or credit developments. The new coordination mechanism, the European Semester, has substantially improved governance, although, it should be stressed, from a more intergovernmental than Community focus. 

As for the EMU structure itself, the Barroso Commission had already launched a plan to create a true EMU, later supported by the Council and formulating what would end up being called "The 5 Presidents' Report" (including, in addition, those of the European Parliament, Central Bank and Eurogroup) established a "road map". 

Since then, and bearing in mind that it was the European banking system that was the first victim of the financial crisis, the first of the two elements, banking union, was accelerated. In this respect, of the three components (a single resolution mechanism, a single supervisory mechanism and a common deposit guarantee fund), it has only been possible to complete the first two. The obstacle lies, as in other elements of EMU, in the mutualisation of risks, i.e. the use of common funds to deal with crises in one or more of the member countries, without necessarily including one's own.  

Progress on fiscal union is more complex. In the "5 Presidents' Report", after a phase of stabilisation of fiscal policies, it is proposed, between 2017 and 2025, to continue deepening European convergence, with the aim of creating a "European Treasury", for which important institutional and legal changes are necessary. Since then, both the Commission and various working groups have come up with different formulations, differing in terms of the role and the timeframe needed for such a Treasury to become operational. 

Regarding the elements that a fiscal union should consist of, the first would be the existence of rules and coordination, which we have through the SGP and the TSCG. The second element should be a crisis management and resolution mechanism. The ESM (European Stability Mechanism) already fulfils the first role, but for crisis resolution it should have the capacity to restructure debt, if necessary. The third element, banking union, is also advanced, with the deposit guarantee fund still to be set up and endowed. It is the final components of fiscal union that are the most difficult to agree: the creation of a stabilisation fund or risk mutualisation mechanism (e.g. to address unemployment or to smooth the business cycle) and the joint issuance of bonds to help finance it.

Therefore, as the new Von der Leyen Commission takes office at the end of 2019, these changes are not only necessary, but relatively urgent. In convening the Conference on the Future of Europe, in its second objective ('a social, sustainable, creative and prosperous Europe') point 3 is called 'Deepening EMU to ensure consistency of EU priorities and take concrete steps towards a genuine Fiscal Union'. When this was formulated, it was a continuation of the previous process, but, from a political point of view, neither the Conference is sufficient to achieve a change in the Treaties (a Convention is needed) nor were the positions on when and how to do so close. 

The perspectives on this issue within the Conference are now different, since, with the crisis generated by the pandemic, the solution adopted is of a very different nature to that of the financial crisis. The Recovery Plan for Europe, known as the "Next Generation EU", is based on European institutions rather than an intergovernmental agreement. For the first time, the European Commission is empowered to finance itself on the international markets, constituting the possible embryo of a "European Treasury". Moreover, the concentration of resources in the countries most affected by the pandemic gives it, de facto, the character of a stabilisation fund, with the capacity to mutualise the risks generated. 

The challenge is for the Conference to succeed, from an economic point of view, in consolidating what was agreed when the Recovery Plan was created, so that it is transferred to the institutional level and to the Treaties. That is the challenge, but also the hope that we place in it.  

Mariam Camarero, Professor of Economics and Jean Monnet Professor ad personam. Jaume I University of Castellón.