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Leaders review progress in strengthening economic and monetary union

<p>Julien Eichinger © Fotolia.com</p>

Julien Eichinger © Fotolia.com

On 28 June 2013, the European Council took stock of ongoing work to deepen economic and monetary union (EMU). The main short-term priority is still to develop banking union in order to ensure financial stability and reduce market fragmentation. Leaders will return to EMU issues in October.

Banking union

Stricter rules on bank capital requirements adopted on 21 June and implementation of a single supervisory mechanism (SSM) under the responsibility of the European Central Bank are expected to play a key role in ensuring the stability of the banking sector. Banks placed under its umbrella will have to undergo a balance sheet assessment and an asset quality review prior to the launch of the SSM.

From that stage onwards, the European Stability Mechanism (ESM) will be able to recapitalise banks directly. The main features of this new instrument were agreed upon by the Eurogroup on 20 June.

After a deal struck by finance ministers on 27 June, the Council Presidency can now launch negotiations with the European Parliament on a new framework for bank recovery and resolution. It will give national authorities common powers to pre-empt bank crises and, if required, to wind down financial institutions in an orderly manner, while preserving essential banking operations and minimising costs for taxpayers.

The Commission will shortly propose a single resolution mechanism for banks covered by the SSM.

Coordination of economic policies in the euro area

This autumn, the Commission intends to present a proposal on the ex ante coordination of major economic reforms in line with the Treaty on Stability, Coordination and Governance ("fiscal compact").

Leaders agreed that the social dimension of the EMU should be strengthened, including by ensuring better coordination of employment and social policies. The social partners (employers and trade unions) will play an important role in that regard.

Mutually agreed contracts and associated solidarity mechanisms, which would be voluntary for non-euro area countries, require further work.

The European Council will examine all these issues in October, with the aim of taking decisions in December.

Latvia euro adoption

The European Council welcomed the Commission's proposal that Latvia should join the currency union on 1 January 2014 and congratulated Latvia on the convergence it has achieved. A formal decision by the Council is expected in July, following consultation of the European Parliament.


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