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Europaudvalget 2011-12, Det Udenrigspolitiske Nævn 2011-12
EUU Alm.del Bilag 507, UPN Alm.del Bilag 269
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EUROPEAN COUNCIL

THE PRESIDENT

Brussels, 25 June 2012

SN 25/12

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TOWARDS A GENUINE ECONOMIC AND MONETARY UNION

Report issued on 25 June 2012

ONSOLIDATING THE

CONOMIC AND

ONETARY

NION

The economic and monetary union (EMU) was established to bring prosperity and stability across

Europe. It is a cornerstone of the European Union. Today the EMU is facing a fundamental

challenge. It needs to be strengthened to ensure economic and social welfare.

This report, prepared by the President of the European Council in collaboration with the President

of the Commission, the President of the Eurogroup and the President of the European Central Bank,

aims at developing a vision for the EMU to ensure stability and sustained prosperity. It does so by

proposing a strong and stable architecture in the financial, fiscal, economic and political domains,

underpinning the jobs and growth strategy.

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Challenges

An effective vision has to confront the long-term challenges that the EMU faces. The euro area is

diverse and policy-making at the national level is the most effective method for many economic

decisions. Yet, national policies cannot be decided in isolation if their effects quickly propagate to

the euro area as a whole. Therefore, such national policies must reflect fully the realities of being in

a monetary union. Maintaining an appropriate level of competitiveness, coordination and

convergence to ensure sustainable growth without large imbalances is essential. This should allow

for the appropriate policy mix with the single monetary policy in pursuit of price stability.

But to ensure stability and growth in the euro area, Member States have to act and coordinate

according to common rules. There have to be ways on ensuring compliance when there are negative

effects on other EMU members. This is necessary to guarantee the minimum level of convergence

required for the EMU to function effectively.

Overall, closer EMU integration will require a stronger democratic basis and broad support from

citizens. For this reason, it is essential that already the process towards realising this vision is based

on wide consultation and participation. Integration and legitimacy have to advance in parallel.

The vision for the future of EMU governance laid out in this report focuses on the euro area

Member States as they are qualitatively distinct by virtue of sharing a currency. Nevertheless, the

process towards deeper economic and monetary union should be characterised by openness and

transparency and be in full compatibility with the single market in all aspects.

Vision

The report proposes a vision for a stable and prosperous EMU based on four essential building

blocks:



An integrated financial framework

to ensure financial stability in particular in the euro area and

minimise the cost of bank failures to European citizens. Such a framework elevates

responsibility for supervision to the European level, and provides for common mechanisms to

resolve banks and guarantee customer deposits.

An integrated budgetary framework

to ensure sound fiscal policy making at the national and

European levels, encompassing coordination, joint decision-making, greater enforcement and

commensurate steps towards common debt issuance. This framework could include also

different forms of fiscal solidarity.



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

An integrated economic policy framework

which has sufficient mechanisms to ensure that

national and European policies are in place that promote sustainable growth, employment and

competitiveness, and are compatible with the smooth functioning of EMU.

Ensuring the necessary

democratic legitimacy and accountability

of decision-making within the

EMU, based on the joint exercise of sovereignty for common policies and solidarity.



These four building blocks offer a coherent and complete architecture that will have to be put in

place over the next decade. All four elements are necessary for long-term stability and prosperity in

the EMU and will require a lot of further work, including possible changes to the EU treaties at

some point in time.

II.

EY BUILDING BLOCKS

An integrated financial framework

The financial crisis has revealed structural shortcomings in the institutional framework for financial

stability. Addressing these shortcomings is particularly important for the euro area given the deep

interdependences resulting from the single currency. However, this needs to be done whilst

preserving the unity and integrity of the single market in the field of financial services. Therefore,

an integrated financial framework should cover all EU Member States, whilst allowing for specific

differentiations between euro and non-euro area Member States on certain parts of the new

framework that are preponderantly linked to the functioning of the monetary union and the stability

of the euro area rather than to the single market.

Building on the single rulebook, an integrated financial framework should have two central

elements: single European banking supervision and a common deposit insurance and resolution

framework.

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Integrated supervision

is essential to ensure the effective application of prudential rules, risk control

and crisis prevention throughout the EU. The current architecture should evolve as soon as possible

towards a single European banking supervision system with a European and a national level. The

European level would have ultimate responsibility. Such a system would ensure that the supervision

of banks in all EU Member States is equally effective in reducing the probability of bank failures

and preventing the need for intervention by joint deposit guarantees or resolution funds. To this end,

the European level would be given supervisory authority and pre-emptive intervention powers

applicable to all banks. Its direct involvement would vary depending on the size and nature of

banks. The possibilities foreseen under Article 127(6) TFEU regarding the conferral upon the

European Central Bank of powers of supervision over banks in the euro area would be fully

explored.

Building on existing and forthcoming Commission proposals, work should be taken forward on

deposit insurance and resolution:

A European deposit insurance scheme

could introduce a European dimension to national deposit

guarantee schemes for banks overseen by the European supervision. It would strengthen the

credibility of the existing arrangements and serve as an important assurance that eligible deposits of

all credit institutions are sufficiently insured.

A European resolution scheme

to be primarily funded by contributions of banks could provide

assistance in the application of resolution measures to banks overseen by the European supervision

with the aim of orderly winding-down non-viable institutions and thereby protect tax payer funds.

The deposit insurance scheme and the resolution fund could be set up under the control of a

common resolution authority. Such a framework would greatly reduce the need to make actual use

of the guarantee scheme. Nevertheless, the credibility of any deposit guarantee scheme requires

access to a solid financial backstop. Therefore, as regards the euro area, the European Stability

Mechanism could act as the fiscal backstop to the resolution and deposit guarantee authority.

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Towards an integrated budgetary framework

The financial and debt crisis has underlined high levels of interdependence particularly within the

euro area. The smooth functioning of the EMU requires not only the swift and vigorous

implementation of the measures already agreed under the reinforced economic governance

framework (notably the Stability and Growth Pact and the Treaty on Stability, Coordination and

Governance), but also a qualitative move towards a fiscal union.

In the context, within the euro area, of greater pooling of decision making on budgets

commensurate with the pooling of risks, effective mechanisms to prevent and correct unsustainable

fiscal policies in each Member State are essential. Towards this end, upper limits on the annual

budget balance and on government debt levels of individual Member States could be agreed in

common. Under these rules, the issuance of government debt beyond the level agreed in common

would have to be justified and receive prior approval. Subsequently, the euro area level would be in

a position to require changes to budgetary envelopes if they are in violation of fiscal rules, keeping

in mind the need to ensure social fairness.

In a medium term perspective, the issuance of common debt could be explored as an element of

such a fiscal union and subject to progress on fiscal integration. Steps towards the introduction of

joint and several sovereign liabilities could be considered as long as a robust framework for

budgetary discipline and competitiveness is in place to avoid moral hazard and foster responsibility

and compliance. The process towards the issuance of common debt should be criteria-based and

phased, whereby progress in the pooling of decisions on budgets would be accompanied with

commensurate steps towards the pooling of risks. Several options for partial common debt issuance

have been proposed, such as the pooling of some short-term funding instruments on a limited and

conditional basis, or the gradual roll-over into a redemption fund. Different forms of fiscal

solidarity could also be envisaged.

A fully-fledged fiscal union would imply the development of a stronger capacity at the European

level, capable to manage economic interdependences, and ultimately the development at the euro

area level of a fiscal body, such as a treasury office. In addition, the appropriate role and functions

of a central budget, including its articulation with national budgets, will have to be defined.

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Towards an integrated economic policy framework

In an economic union, national policies should be orientated towards strong and sustainable

economic growth and employment while promoting social cohesion. Stronger economic integration

is also needed to foster coordination and convergence in different domains of policy between euro

area countries, address imbalances, and ensure the capacity to adjust to shocks and compete in a

globalised world economy. This is essential for the smooth functioning of the EMU and is an

essential counterpart to the financial and fiscal frameworks.

It is important, building on the principles spelled out in the European semester and the Euro Plus

Pact, to make the framework for policy coordination more enforceable to ensure that unsustainable

policies do not put stability in EMU at risk. Such a framework would be particularly important to

guide policies in areas such as labour mobility or tax coordination.

Measures to strengthen the political and administrative capacity of national institutions and foster

national ownership of reforms could be taken where necessary, as this is a vital condition for the

efficient implementation of growth enhancing reforms.

Strengthening democratic legitimacy and accountability

Decisions on national budgets are at the heart of Europe's parliamentary democracies. Moving

towards more integrated fiscal and economic decision-making between countries will therefore

require strong mechanisms for legitimate and accountable joint decision-making. Building public

support for European-wide decisions with a far-reaching impact on the everyday lives of citizens is

essential.

Close involvement of the European parliament and national parliaments will be central, in the

respect of the community method. Protocol 1 TFEU on the role of national parliaments in the EU

offers an appropriate framework for inter-parliamentary cooperation.

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III. N

EXT STEPS

PROPOSAL FOR A WORKING METHOD

Further work is necessary to develop a specific and time-bound road map for the achievement of the

genuine Economic and Monetary Union.

A report could be submitted to the December European Council by the President of the European

Council in close collaboration with the President of the Commission, the President of the Eurogroup

and the President of the European Central Bank. There will be regular and informal consultations

with the Member States and the EU institutions. An interim report could be presented in October

2012.

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