Blog Post

A genuine monetary union?

The European Commission’s president, José Manuel Barroso, last week proposed a roadmap setting out how to transform Europe’s current set-up into a better-functioning monetary union. The paper has two major weaknesses, but it makes three very good and ambitious points. First, on the positive side, the communication stresses the need to move ahead with a […]

By: Date: December 6, 2012 Topic: European Macroeconomics & Governance

The European Commission’s president, José Manuel Barroso, last week proposed a roadmap setting out how to transform Europe’s current set-up into a better-functioning monetary union. The paper has two major weaknesses, but it makes three very good and ambitious points.

First, on the positive side, the communication stresses the need to move ahead with a common bank-resolution authority and acknowledges that a purely national system of resolution would not be effective. This is a major and very important change in the Commission’s policy stance: until very recently, the Commission’s view was that national resolution would suffice. A banking union without a common resolution authority would not be a genuine banking union. Without a common form of resolution, there can be no form of risk-sharing. And without risk-sharing, one of the main aims of the banking union – to break the vicious circle between bank debt and sovereign debt – cannot be achieved. The single financial market would remain fragmented.

Second, the Commission’s communication elaborates on what to do with the current debt overhang in the eurozone. Its solution – a redemption fund coupled with ‘eurobills’ (short-term debt backed by all 17 members of the eurozone) – is very controversial, but the Commission deserves credit for highlighting that there is a debt problem. It is high time that Europe thought more deeply about how to organise the large process of deleveraging its debt. It is unlikely that prolonged high levels of savings would alone be enough to do the trick.

Third, the communication rightly accepts the need for a common eurozone budget. A eurozone budget would serve as a stabilising factor in the event of both ordinary shocks and asymmetric shocks. The communication also clearly states that the budget must be designed to ensure that there are no permanent transfers and that it fosters structural change. The Commission fails, though, to point out that a common budget is only needed when there are extremely deep recessions.

Two important issues are entirely missing from the communication, however.

First, the section on bank resolution appears strangely incomplete. Centralising resolution powers entails a major transfer of sovereignty, which in turn requires very deep reforms and clear thinking about democratic accountability. Contrary to the Commission’s claims, changes to the EU treaty therefore appear indispensable. It is also possible that we would end up with a new resolution authority inadequately equipped to wind up banks in a way that minimises the cost to the taxpayer. The Commission should therefore re-think its approach to bank regulation. Is the implementation of a single rulebook enough to prevent major risks to taxpayers? Finally, contributions from the financial industry would be an excellent way of reducing costs to the ordinary taxpayer. At the same time, though, general tax resources will need to be called on in extreme cases

A second criticism concerns the Commission’s analysis of the macroeconomic situation. The Commission sets out relatively detailed timetables for a banking and fiscal union, but it suggests no specific steps to restore growth in Europe quickly. There is obviously a major structural component to Europe’s weak growth. That structural element needs to be addressed urgently. However, remedial, structural action would produce growth in perhaps three years’ time, and so the outlook for the next two years would remain bleak. This holds true particularly for the countries of southern Europe.

What does the Commission consider to be the truly important macroeconomic policies that Europe should enact now in order to overcome its dramatic decline in growth? The Commission will have to take a position on Europe’s macroeconomic policy. Long-term reforms are no substitute for this, because anaemic growth in Europe will undermine them. 

A version of this column was originally published in the European Voice


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article
 

Blog Post

Will European Union recovery spending be enough to fill digital investment gaps?

The recovery facility will boost digital transformation, but questions remain whether it will be sufficient to achieve Europe’s digital ambitions.

By: Zsolt Darvas, J. Scott Marcus and Alkiviadis Tzaras Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: July 20, 2021
Read about event More on this topic
 

Upcoming Event

Sep
1
12:30

The EU recovery fund - state of play and outlook

Bruegel Annual Meetings, Day 1- In this session we will discuss the EU recovery fund, its state of play and outlook.

Speakers: Nadia Calviño, Karolina Ekholm and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

Sep
2
10:00

Conversation on the recovery programmes

Bruegel Annual Meetings, Day 2- In this session, we discuss the recovery programmes.

Speakers: Maria Demertzis and Tadeusz Kościński Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read about event
 

Upcoming Event

Sep
2
13:00

European banks: under global competitive pressure?

Bruegel Annual Meetings, Day 2 - European banks have lost stature and remain generally low-profitability, low-valuation in comparison to their global peers. Is that a problem? If so, what can EU policymakers do to address it?

Speakers: José Antonio Álvarez Álvarez, Mairead McGuinness and Nicolas Véron Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Palais des Academies, Rue Ducale 1
Read about event More on this topic
 

Upcoming Event

Sep
2
15:45

Blending physical and virtual: shaping the new workplace

Bruegel Annual Meetings, Day 2 - This panel will cover the changes the COVID-19 pandemic made to our workplaces, and what to expect in the near future.

Speakers: Nicholas Bloom, Michael Froman, Mario Mariniello, Sara Matthieu and Luca Visentini Topic: European Macroeconomics & Governance Location: Academy Palace
Read about event More on this topic
 

Upcoming Event

Sep
3
09:00

The role of the EU's trade strategy for an inclusive and sustainable recovery

Bruegel Annual Meetings, Day 3 - We are delighted to welcome Valdis Dombrovskis, Executive Vice President of the European Commission for An Economy that Works for People to talk about Europe's trade strategy.

Speakers: Valdis Dombrovskis, Alicia García-Herrero and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read about event More on this topic
 

Upcoming Event

Sep
3
10:15

Conference on the Future of Europe: envisioning EU citizens engagement

Bruegel Annual Meetings, Day 3 - Panellists will discuss different options and what they may entail while revisiting the debates on the future of Europe at national and EU-level that have been conducted thus far.

Speakers: Caroline de Gruyter, Kalypso Nicolaïdis, Niclas Poitiers and György Szapáry Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read article Download PDF
 

Policy Contribution

A new direction for the European Union’s half-hearted semiconductor strategy

The EU needs a more targeted strategy to increase its presence in this strategic and thriving sector, building on its existing strengths, while accommodating its relatively low domestic needs.

By: Niclas Poitiers and Pauline Weil Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: July 15, 2021
Read article More by this author
 

Blog Post

Fit for 55 marks Europe’s climate moment of truth

With Fit for 55, Europe is the global first mover in turning a long-term net-zero goal into real-world policies, marking the entry of climate policy into the daily life of all citizens and businesses.

By: Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance Date: July 14, 2021
Read article More on this topic
 

Blog Post

Fair vaccine access is a goal Europe cannot afford to miss – July update

European countries must do more to tackle the vaccine uptake gap. Vaccination data should be published at the maximum granularity level so researchers and local decision-makers can monitor progress.

By: Lionel Guetta-Jeanrenaud and Mario Mariniello Topic: European Macroeconomics & Governance Date: July 14, 2021
Read article More by this author
 

Blog Post

SPACs in the gap

Special-purpose acquisition vehicles could fill a gap in European equity markets and lure risk-averse investors off the sidelines.

By: Rebecca Christie Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: July 13, 2021
Read article More on this topic
 

Blog Post

A breakdown of EU countries’ post-pandemic green spending plans

An analysis of European Union countries’ recovery plans shows widely differing green spending priorities.

By: Klaas Lenaerts and Simone Tagliapietra Topic: European Macroeconomics & Governance Date: July 8, 2021
Load more posts