A budgetary capacity for the Eurozone: a federalist view

Contribution to the European Parliament‘s Own Initiative Report in preparation by the Economic and Monetary Affairs Committee and the Budget Committees

By DAVID GARCIA and PAOLO VACCA

SUMMARY

The economic, financial and sovereign-debt crises that have hit Europe over the last 8 years have exposed the weaknesses of the Economic and Monetary Union (EMU). The superficial symptoms of these structural flaws was addressed through changes to Eurozone governance and institutions between 2012 and 2013.

Today the Eurozone appears more resilient than before the 2011 crisis, an impression certainly facilitated by a more stable global economic and financial situation outside of Europe. As a consequence, Member States have de facto shelved even the moderate proposals towards a fiscal and economic union contained in the “Five Presidents’ Report: Completing Europe’s Economic and Monetary Union”. However, as the President of the European Central Bank has repeatedly warned, some of the essential root causes that once pushed the Eurozone to the edge of implosion, have not been addressed. The robustness of the new construction is yet to be tested in a time of financial turmoil. It could very easily cave in should there be a radical political change at the national level or serious financial difficulties affecting a sizeable Eurozone Member State.

The European Parliament is today at the forefront of the reflection on one of the key matters of the reform of the EMU: a budgetary capacity, which both the Commission’s 2012 “Blueprint for a deep and genuine economic and monetary union: Launching a European Debate”, the 2012 Four Presidents’ Report ”Towards a Genuine Economic and Monetary Union” and the Five Presidents’ Report of 2015 recognised as an essential element in the creation of the “fiscal leg” for the EMU.

This Policy Brief attempts to provide some answers from a federalist perspective to the comprehensive series of questions listed by rapporteurs Pervenche Berès MEP and Reimer Böge MEP ahead of the own initiative report on “a budgetary capacity for the Eurozone” in preparation by the Economic and Monetary Affairs Committee and the Budget Committee of the European Parliament. These questions and answers concern the structure, purpose and functioning of an eventual EMU fiscal capacity, as well as the ways to overcome the main political challenges that this sort of fiscal integration would entail.

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