The latest push to revive Eurozone reform efforts shows an EU-Commission capitulating in the face of two divergent perspectives among the divided member states. It is doubtful if adherents of a stability union or a fiscal union approach will find common ground this time.
The European Commission’s recent reflection paper on deepening the Economic and Monetary Union (EMU) adds another laundry list to a long row of reform plans for the Eurozone, catalysed by the crisis starting in late 2009. At the time, it seemed like common sense that ad-hoc measures of crisis management, like the ESM, the fiscal compact and austerity policies will not be enough to repair the deficiencies leading to the Euro crisis. However, the various official reform catalogues published since 2012 were kicked off the agenda by heads of state and government in light of their high ambitions on fiscal integration and concise roadmaps for supranational action. Member states have not been willing to walk that path and it was trouble enough for them to bring together the divergent views on the sole new project of Banking Union.
Compared to the 2012 reform plans, this report was not even discussed by the member states.
The latest push for fundamental Eurozone reform
In 2015, the new Juncker Commission started a new approach to revive the reform plans. In a long preparation process, member states’ governments could submit their visions for a future EMU design to Brussels. The outcome was the “Five President’s Report”, presenting the supposed strait of an imaginable consensus. In the short term, rules-based approaches stemming from crisis management with their focus on budgetary restraint were proposed, while for the time after 2017, developments towards a fiscal union should have followed.
Compared to the 2012 reform plans, this report was not even discussed by the member states – Juncker’s synopsis wanted too little regime change for one side of the actors’ spectrum and too much integration for the other. Having learned this lesson, the Commission capitulates in front of the unsolvable problem of two highly divergent perspectives on how the future EMU should look like instead of using the new reflection paper to forcefully push for a coherent vision of a completed Eurozone.
United in disunity: Opposing reform camps
In the Eurozone, a relatively coherent group around Germany and Finland (with Estonia, Lithuania, The Netherlands and Malta) would like to repair the existing status quo of the EMU in light of their interpretation of lessons learned in the Euro crisis while in principle preserving the dominant perspective of a stability union. In this view, budgetary restraint and market-based competition based on clearly-enforced, technocratic rules are key to ensure stability and prevent supposedly wrong fiscal, wage and economic policies of individual member states from wreaking economic havoc in the Eurozone once again.
In contrast, a less clearly defined group led by France and Italy (with Spain, Portugal, Belgium, Luxemburg, Slovenia and Latvia, and, with far less conviction, Austria, Ireland, Cyprus and Slovakia) sees the lesson of the crisis as a necessary shift towards a fiscal union. For them, the Eurozone crisis was caused by systemic problems and market failures in an incomplete setup which thus demands fiscal integration and transnational regulation as well as policy instruments and democratic accountability at the EMU level.
In the political arena, the stability union supporters are more united, have a simple and visible perspective and the countries represented by these governments are perceived as economically prosperous. In contrast, the opposing fiscal union camp appears too vague in the precise detail of the desired fiscal union, too diverse in the proposed instruments, institutions and procedures and too fractured into thematic sub-groups. Also, the core of the camp pushing for a fiscal union consists largely of states that have been hit hard by the crisis and whose European negotiating positions are weakened by their high unemployment and public debt.
A conflict unresolved: Quo vadis, Eurozone?
The Commission cannot solve these divergent perspectives and claims by member states of each camp are mounting in the firm conviction to propose the only possible way forward. This reflection paper is therefore the most comprehensive document on reform proposals. It contains stronger conditionality of financial support by budgetary and structural reforms (stability union) as well as a macroeconomic stabilizer like a European unemployment insurance (fiscal union). Taking all contradictory ideas for completing EMU on board, Juncker plays the ball back to the member states and asks them to sort out the future of the Eurozone.
At a time where President Macron and Chancellor Merkel like to celebrate a renaissance of the Franco-German “moteur de l’integration”, hope remains that pragmatism will win over dogma. Nonetheless, the fear persists that the “bridge-building” the Commission would like to see will, if anything, consist of unsustainable compromises, as in the case of the Banking Union.
The author’s study “The divided Eurozone. Mapping conflicting interests on the reform of the Monetary Union” can be downloaded for free at Friedrich-Ebert-Stiftung Brussels