President of the European Council Herman Van Rompuy
© European Union, 2012
On 18 October 2012, the heads of state and government held a wide-ranging discussion on the interim report on the strengthening of the Economic and Monetary Union presented by the President of the European Council Herman Van Rompuy. Working closely with the Presidents of the Commission, the Eurogroup and the European Central Bank, he will present the final report, including a "specific and time-bound roadmap", in December.
Given the structural challenges specific to the eurozone, the report focuses on the institutional and practical steps needed at the level of the eurozone to ensure the stability of the Economic and Monetary Union. The process towards a deeper integration within the EMU, however, is characterised by openness and transparency towards non-eurozone member states and respects the integrity of the single market.
The report outlines components for strengthened frameworks for the financial sector, budgetary matters, economic policy, and democratic legitimacy and accountability.
Some of the components are already in the legislative pipeline or being implemented; others are initial ideas presented for further debate.
1. Financial framework (banking union)
Legislative work on a Single Supervisory Mechanism (SSM), covering euro area banks and open to all member states, is in progress. The European Council stated that the objective is to reach an agreement on the legislative framework by 1 January 2013, while work on the operational implementation will take place in the course of 2013. All this must be done with full respect for the integrity of the of the single market.
Once the SSM, to be run by the European Central Bank, is fully operational, the European Stability Mechanism (ESM) will be able to recapitalise banks directly, thus breaking the vicious circle between banks and sovereigns (see the June Euro Area Summit statement). The European Council confirmed that the Eurogroup will draw up the operational criteria that will guide direct bank recapitalisations by the ESM, in full respect of the June statement.
Legislative proposals on new, more harmonised national bank resolution and deposit guarantee frameworks are also already under discussion; the European Council called for their rapid adoption. Once they have been adopted, the Commission intends to propose a single resolution mechanism for member states participating in the SSM.
2. Fiscal framework
As regards key legislation to reinforce economic and fiscal governance, the European Council called for adoption of the "two-pack" by the end of the year. These two regulations to strengthen budgetary surveillance in the eurozone will complement the Treaty on Stability, Coordination and Governance and the "six-pack".
Further ideas put forward by the report for discussion include the development of a fiscal capacity for the euro area, which could help absorb country-specific economic shocks or facilitate structural reforms. The European Council agreed that "further mechanisms, including an appropriate fiscal capacity, will be explored for the euro area". The European Council President will present a more detailed examination of a possible fiscal capacity in December. This idea will be explored independently from the EU's Multiannual Financial Framework.
3. Economic framework
In the field of economic policy, the European Council conclusions state that "the idea of the euro area Member States entering into individual arrangements of a contractual nature with the EU institutions on the reforms they commit to undertake and on their implementation will be explored".
Such contractual arrangements would build upon recent reforms of the EU economic surveillance framework. These have already created a European Semester, which is a policy coordination exercise bringing together budgetary surveillance, country-specific recommendations for economic policies and a Macroeconomic Imbalances Procedure, as the report points out. The necessary "reforms identified in the country-specific recommendations" might serve as the focus for new contractual arrangements, the European Council concluded.
4. Democratic legitimacy
The European Council endorsed the guiding principle laid out in the report, according to which "democratic control and accountability should occur at the level at which decisions are taken".
The issue of how best to ensure that both the European Parliament and national parliaments are involved, in particular in debates in the context of the European Semester, should be explored.
All of these issues will be explored in informal consultations with member states and the European Parliament. The final blueprint, including a specific and time-bound roadmap for achieving a "genuine Economic and Monetary Union", will be presented at the European Council meeting on 13-14 December.