The European Union’s executive outlined Wednesday a series of measures it thinks could shore up the euro currency in the coming decade, ideas that were raised – and often rejected by Germany – during the eurozone’s debt crisis.
In a wide-ranging discussion paper that forms part of a strategy to reinvigorate the EU following Britain’s vote to leave the bloc, the European Commission said there is a “growing awareness” that further steps are needed to complete the euro’s financial architecture.
The euro’s shortcomings really came to the fore during the debt crisis that affected many of its members, notably Greece, from 2010 on. The eurozone’s member states and its main bodies, like the European Central Bank, found themselves firefighting the crisis and trying various solutions. Though new institutions have been created, such as a bailout fund, and there is now more coordination among the 19 eurozone countries over policy, the Commission thinks more needs to be done, quickly, to put the currency on a surer footing.
“What we’re saying now is that we should not be waiting for another crisis but rather move forward, use this context of the debate of the future of the EU,” said Valdis Dombrovskis, the EU vice president who is responsible for the euro.
In the paper, the Commission presents many ideas, both for the short- and long-term.
For the short-term, through to 2019, it proposes completing such things as the banking union, an agreement on a European deposit insurance scheme, new financial instruments to diversify banks’ balance sheets and better converging economic policies among eurozone countries.
As longer-term efforts, from 2020 and 2025, the Commission sees bolder steps, including the creation of a “European safe asset” – a financial instrument for the common issuance of debt.
The Commission acknowledged that having jointly issued debt faces a number of legal, political and institutional hurdles. The idea of sharing debt was heavily debated during the years when Greece, Ireland, Portugal and Cyprus required financial bailouts.
Germany, for one, has been opposed to debt sharing because of worries it could weaken incentives for individual countries to pursue sound fiscal policies. Germany would be putting up its own hard-won economic reputation to the benefit of others, diluting its own position.
Other ideas include getting euro countries to act as one within the International Monetary Fund and the creation of a European-type IMF as well as a eurozone Treasury. Also proposed was the creation of a permanent EU finance minister, who would also chair eurozone finance meetings. The role would be akin to Federica Mogherini’s role as the EU’s foreign affairs chief.
“We are today calling for a far-reaching debate on strengthening the euro area’s governance and of its democratic accountability,” said Pierre Moscovici, the Commission’s top economy official.
Whether the Commission’s ideas have any chance of coming to fruition will largely depend on Germany, Europe’s biggest economy and the chief contributor to the sovereign bailouts of the past few years. Germany has been adamant that it won’t back proposals that weaken incentives for eurozone members to make their economies stronger – Germany’s bailout cash has come on condition that governments reform their economies and public finances.
French President Emmanuel Macron has made bolstering the euro’s resilience a key part of his administration’s plans. He is expected to try to ease German concerns by pushing through wide-ranging economic reforms in France – as he tried to do when he was economy minister for his predecessor as president, Francois Hollande.
“Macron knows that shifting German policy will be hard,” Charles Grant, director of the Centre for Economic Reform, said recently in an article. “He hopes that success will give him the credibility to go to Berlin and propose a concordat on the euro and much else.”
The Commission knows that compromises will be needed to push through its proposals.
“It is time to put pragmatism before dogma, to put bridge-building before individual mistrust,” it wrote in the closing remarks to its paper.