Finally settling economic and monetary union

At its most recent meeting, on December 19-20 in Brussels, the European Council has significantly strengthened economic and monetary union (EMU). The banking union made a huge step forward, and a major conclusion was reached regarding the “contracts”—now called “partnerships”—between member states and the European Union.

At the same time, the Council decided to take the first nine months of 2014 to prepare for the start of these new partnerships. We think this new instrument will fill the void of the unfinished business of the Maastricht Treaty of 1992, and will link economic governance to political union as the best way of generating more jobs, a more stable Europe and a more sustainable future.

This requires a good balance between what is up to the member states and what is up to the European Union. In our view, the new partnerships play a key role in achieving that balance. That is why we believe it is necessary first to have the elections for a new European Parliament, in May 2014, followed by the installation of a new Commission, and only then to have the start of a new political phase of EMU.

Given the rise of populism and euroscepticism and the influence this will have on the European elections in May 2014, further political development of EMU is an uncertain business. In many member states we see a sharpening of opinions on either side of the European debate. There is increasing controversy about what can be decided in Brussels and what needs to be left to the member states. We believe whole-heartedly that the subsidiarity principle—implementing policies as much as possible in member states and as little as possible in Brussels—should prevail.

The latest EMU decisions of the European Council were predetermined by the plan published in December 2012 by Herman Van Rompuy, President of the European Council. This plan consists of four linked “building blocks”: proposals for banking union, fiscal union, economic union, and political union. On the first three, the European Council by now has achieved much more than anyone thought possible at the outbreak of the eurocrisis in 2010.

Fiscal union actually started over the past few months, with European Commissioner Olli Rehn at the helm.

Banking union had made considerable progress already earlier in 2013 with the setting up of the single supervisory mechanism, to be chaired by Danièle Nouy of France. Now the European Council has decided on a single resolution mechanism, to go hand in hand with the supervisory mechanism. Before all this can start, banks in Europe will have to go through an asset quality review and a stress test. Only banks that pass this test will be admitted to the banking union.

Regarding economic union, the European Council reached a conclusion on one of the most controversial elements of the Van Rompuy plan: the “contracts” whereby member states commit to certain key reforms to stimulate growth, improve labor markets, and increase competitiveness. These “mutually agreed contractual arrangements” are now referred to as “partnerships”. The Council emphasized that the new partnerships have to reflect “home-grown commitments” of member states. Hence our claim that the new partnerships will be a testing ground of subsidiarity-in-action.

The Council also decided to take ample time to prepare for the start of these new instruments, including the financial obligations associated with the partnerships, and to reach final conclusions on all of this only in its meeting of October 2014. We think it is prudent of the European Council to take the time to sort out these nettle questions, and to conclude only after the dust of the European Parliament elections has settled.

As to political union, compared to the first three building blocks it was under-represented from the start. In his December 2012 plan, Van Rompuy gave the idea of political union hardly any substance. In fact, he seemed to be suggesting little more than that national parliaments and the European Parliament should have a larger role in EMU decisions.

In its conclusion regarding the Van Rompuy plan, in December 2012, the European Council even announced that a conference would be held in which representatives of all these parliaments should discuss EMU-related issues. That conference, however, has still not taken place. Instead, there is now the ambition to agree with the new European Parliament on the conclusions of the European Council of October 2014.

In the time of Maastricht, in December 1991, the decision was taken to leave the political union for the future. That has proven to be a dramatic mistake—also because financial innovations, Lehman Brothers, Basel 1, 2, and 3 etc. slowed down financial governance in Europe itself. Therefore it has to be applauded that the European Council in December 2013 has taken nine more months to settle things finally.

Ruud Lubbers (former prime minister of The Netherlands) and Paul van Seters (professor at Tilburg University) 8 January 2014

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