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GEOMETR.IT     ecfr.eu


*Two camps middle in the EU

One of the European Union’s most pressing concerns is reform of the eurozone. Although economic recovery has removed the euro crisis from daily headlines, it is far from solved. The balance sheets hide significant risks: deficits and debt levels in some member states are still uncomfortably high. The German current account surplus (which many perceive as an impediment to balanced economic growth in the eurozone) is close to its record high, with no mechanism in place to incentivise Germany towards policy change.

The crisis could re-emerge if the business cycle deteriorates. For this reason, economists have long called for further reforms to the eurozone.

Proposals include: a “fiscal capacity”, including a centralised investment budget and transfers between member states;

a eurozone finance minister (or alternatively, an austerity commissioner); the completion of the banking union with a common deposit insurance scheme;

an insolvency procedure for individual eurozone member states; and the introduction of bonds with a certain type of joint liability.

Collaboration and resistance

Recent years have not seen much progress. The 2015 Five Presidents’ Report was arguably less bold in some of its proposals on fiscal and economic policy than the earlier Four Presidents’ Report in 2012. The shortcomings of European monetary union governance have long been a central topic on the agenda of Emmanuel Macron, who has been clearly expressed his desire to collaborate with Germany on this issue.

Chancellor Angela Merkel, meanwhile, signalled that she would be willing to discuss Macron’s proposals. This is a shift in tone compared to previous years, when François Hollande lacked domestic support for sweeping changes to the eurozone governance structure, and Angela Merkel was unwilling to consider such changes.

Fiscal policy reforms designed to make the eurozone work better will likely be met with resistance by some member states. In a number of EU countries, including some eurozone countries such as the Netherlands, politicians are reluctant to move ahead with further fiscal integration.

To place this in context, one must recall that some EU member states have decided to opt out of the common currency, concerned both about a potential loss of sovereignty in key areas of their fiscal policy, and about the fact that the fiscal compact (a set of rules intended to improve budget discipline for eurozone countries) has not been signed by either the United Kingdom or the Czech Republic (even though a ratification would have no consequences for these countries’ actual policymaking).

In addition, most proposals for improved eurozone governance only make sense if at least all of the eurozone member states sign up for them. Through the painful lesson of Greece, the eurozone learned that even a small member state (Greece’s economy represents not even 2 percent of EMU GDP) can create existential problems for the currency union.

Eurozone-only reform versus EU-wide reform

These political and economic realities are reflected in the Coalition Explorer in the professionals’ answers to the question of appropriate actor level for achieving better governance of the eurozone.

Fifty-one percent of respondents said that a legally bound core of member states (here, that would be the eurozone countries) would be best equipped to tackle the issue. In no other policy field has the option of a legally bound subgroup of EU countries received a similarly high number of votes.


Most economists would agree with this observation. From an economic point of view, anything with the intention of making the euro work better should be implemented in all eurozone member states, but does not necessarily need to involve other EU countries.

Yet the public remains unconvinced: among the general public, only around 14 percent of respondents say the improvement of eurozone governance should only be pursued by the subgroup of eurozone countries, while 50 percent would still like to see an EU-wide approach to making the eurozone work better.

The importance of the German-French axis in EMU governance reform is clear to read in professionals’ responses to who they see as “essential partners” for their government in the area of fiscal policy.

By an overwhelming majority, Germany is seen as the single most important member state when it comes to fiscal policy. On average, 78 percent of the respondents in each country mentioned Germany as an essential partner.[

France is the second most important actor, with an average of 49 percent of respondents naming it an essential partner. Interestingly, the other two large eurozone countries, Italy and Spain, hold less relevance, with only 20 percent and 16 percent respectively deeming them essential partners.

These results suggest that the specifics of further integration in fiscal policy and eurozone reform are more disputed than any other field of integration.

Whereas some countries prefer to focus on the creation of fiscal policy space at a European level that could then conduct discretionary fiscal policy, other countries want to prioritise increasing pressure on national governments to limit their profligacy. Spheres of influence cluster around these two positions.

The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at :  http://ecfr.eu

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  1. “As far as the proposals were concerned, there was a high level of agreement between German and France. We must still discuss the details, but I am of the firm conviction that Europe can’t just stay still but must continue to develop,” Merkel told reporters before a meeting with Macron in the Estonian capital Tallinn.

  2. Merkel, who was speaking before a gathering of all EU leaders for a summit on Europe’s digital economy, said that Europe had an interest in fighting protectionism and was looking to sign free trade agreements with other countries.

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