Commission wants completion of eurozone by 2025
Werner Mussler, from FAZ, has a cracking story this morning, about unofficial notes from a meeting about the future of the eurozone between Valdis Dombrovskis and Pierre Moscovici from the European Commission and MEPs. Details will be published in a reflection paper in ten days' time. The Commission will make a number of proposals, the most surprising for us being the decision to set 2025 as the date for completion of the eurozone - all EU member states will have to join by then. The Commissioners did not say what forces they would like to deploy to get Poland to elect another government and change the constitution, which would be necessary.
The Commission also wants to subject the eurogroup to parliamentary scrunity, because the citizens are asking for more democracy and less technocracy, as Moscovici put it. He also called the eurogroup a closed shop.
The Commission offers several ideas for common eurozone finance instruments. One is a fund to protect public investment during recessions. Another is a permanent eurozone fiscal capacity, as demanded by Emmanuel Macron. Dombrovskis also mentioned a common unemployment insurance.
FAZ also picked up on a peculiar argument by Moscovici, who said that many euro countries did not have the capacity to keep up investment during economic downturns, something the Juncker investment plan had not changed. Mussler picks up on this argument in an editorial. The Commission is now going beyond "flexibility" by essentially admitting that the stability and growth pact is not working economically, and needs to be corrected. We, too, find this argument mind-boggling. We would agree that the pact is not working, but the solution is not to pretend that it is and plug the holes. Nor will this approach work politically. Wolfgang Schäuble will say that, if governments committed to a fiscal balance of zero, as German has done, they should have enough flexibility during downturns. The problem arises because countries are not willing politically, or capable economically, to fulfil the pact. Observance of fiscal rules has thus become a false pretence, not exactly a good political basis to gain mutual confidence.
We also noted a comment by Moscovici who seemed to have interpreted recent statements by Emmanuel Macron and Angela Merkel as rejecting eurobonds for legacy debt, but not for new debt. He gave no further details.
This point was raised by Wolfgang Münchau in his FT column. He writes that the present eurobond debate has moved on from legacy debt proposals - like the blue-bond-red-bond, the redemption fund, or the more recent European Safe Bonds - to eurobonds as debt instruments of a future eurozone fiscal union. Such a construction would have many advantages, beyond being politically more acceptable to the North. By creating a sufficiently stable risk-free asset, banks would be able to switch their holdings, thereby reducing their dependence on member states' bonds. In the long run, it will thus become easier to deal with excess debt through member states' default and restructuring without risking an immediate banking crisis. He argues that the key element of a eurozone budget is debt-issuing capacity. Without it, it would be pointless to talk about a common fiscal capacity. He calls the SPD's idea - a jointly funded eurozone investment vehicle - a slush fund.
Martin Schulz, meanwhile, clarified his opposition to eurobonds to such a degree that there is no longer a gap between him and Angela Merkel. In an interview with FAZ, published Saturday, he said the following. We quote the passage in full to highlight the clarity and strength of his anti-eurobond position:
"This is yesterday’s debate. It’s finished. I have supported the ESM, of which we can rightly say that it has been a success. Germany’s guarantees 27%, France 20% and Italy 18%. This is a joint liability union. And this means that the debate about eurobonds is finished."
"A mutualisation of national debt is not foreseen by the treaty. Aber we have agreed a mutualisation of risk. That was controversial at the time, but was decided with the vote of Ms Merkel in the European Council. Instead of conducting a phantom debate of mutualisation, I think it is more important to talk about growth and investments in Europe.”
We quoted this section at length to demonstrate that Schulz has formulated a very clear position on this issue, which is perfectly aligned with Merkel and - despite pretences to the contrary - diametrically opposed to Macron. Macron has not campaigned on legacy eurobonds but, if his proposal for a joint fiscal capacity makes any economic sense, they will have to include a funding facility that is not dependent on gifts from member states. Schulz’ comments should also make it clear that, from a French perspective, it matters not a lot what the outcome of the German election will be.