Measures proposed to deepen EU monetary union

A permanent head of the Eurogroup of EU states, and exploring the possibility of creating a new bond market for managing debt collectively, are among measures put forward by the European Commission in a paper on the deepening of economic and monetary union.

The "reflection paper", issued by commissioners Valdis Dombrovskis, vice-president for the euro and social dialogue, financial stability, financial services and capital markets union, and Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, forms part of a wider series of papers from the commission on aspects of Europe's future, an upbeat and integrationist response to the crisis of confidence that Brexit has triggered.

There is no question of the status quo being an option, Mr Moscovici told a press conference in the commission headquarters. The euro zone would be a “vehicle for shared stability” and above all a driver of “convergence” between the member states, the key challenge for the zone. That is the way, he said, to defeat “dangerous populism”, a response that combined “more democracy, less technocracy”.

Need for progress

The paper stresses the need for progress in three areas: completing a genuine fiinancial union, notably by completing the work under way on banking union; achieving a more integrated economic and fiscal union, by enhancing and extending the co-ordination of national budgets through the “European semester”; and both enhancing democratic accountability of EU economic governance through new engagement with the parliament, and strengthening euro zone institutions and capacity.

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Central to the commission proposals are concerns to formalise and integrate the Eurogroup, an informal meeting of ministers that currently precedes the meetings of Ecofin, the EU's finance ministers. The paper suggests the appointment of a new permanent chair to the group, akin to the foreign and security policy supremo Federica Mogherini, who would also straddle the two centres of power, the commission and the Council of Ministers. The group would be given a formal status, those powers it exercised through intergovernmental unanimity voting would be "communitised" (some form of qualified majority voting), and the external representation of the euro area would be unified.

Institutional architecture

The effect would be to significantly strengthen the Eurogroup in the institutional architecture, particularly in relation to Ecofin, and is likely to alarm   non-euro states such as the UK .

Mr Moscovici insists that the intention is not to bully non-euro states but to create structures and enhance the currency to make it more appealing to them to join.

The report notes that two key elements of banking union remain to be completed: a European deposit insurance scheme and by a “credible fiscal backdrop” to what is called the “single resolution fund”, a safety net for the fund that will step in to rescue failing banks. Member states are urged to take the political decisions necessary soon.

The paper argues that greater diversification of banks’ balance sheets could help address the problem of interconnections between banks and their “home countries”.

It proposes the development “of so-called sovereign bond-backed securities (SBBS)”, securitised financial products that could be issued by a commercial entity or institution. It insists this would not involve the taboo debt mutualisation between member states and could help diversification of bank balance sheets.