On the institutional design and governance of the Eurozone

Submitted by the Political Commission 1 – Institutions and Governance
Adopted by the Congress of JEF Europe in Malta on 12 November 2017. Re-adopted by the online Federal Committee on 5 April 2020

JEF Europe,

  • Considering the urgent need for institutional reform to complete the EU’s economic, monetary, fiscal and political union as outlined in the “Blueprint for a deep and genuine economic and monetary union” as well as the Five Presidents’ Report “Completing Europe’s Economic and Monetary Union”;
  • Taking note of the 2017 White Paper on the Future of Europe published by the European Commission, and of the reflection paper on the deepening of the EMU;
  • Considering that both structural and functional changes to the institutional design of the Eurozone are mandatory in order to maintain economic stability, be prepared for future crises and enable long-term sustainable economic growth in the Union;
  • Recalling that the aim of the Economic and Monetary Union is to introduce the Euro as the single currency for all Member States, and as such differentiated Council configurations should only be a temporary state of affairs;
  • Acknowledging the spill-over effects on non-Eurozone countries of decisions that encompass the Euro area;
  • Emphasising the important role fiscal integration has played in political integration projects;
  • Recalling that to ensure the credibility and resilience of the Euro, the European Union has to be equipped with its own (tax-based) budget which is independent from the political interests of the Member States;
  • Recalling that a common currency area including economies with substantially divergent economic cycles requires effective automatic stabilisers, such as a European Unemployment Benefits Scheme or a Cyclical Shock Insurance;
  • Acknowledging the potential redistributive aspect of macroeconomic policy and automatic stabilisers, in particular for the Euro area;
  • Acknowledging that fiscal rules for the Eurozone are a necessary complement to risk mutualisation and therefore must be credible and realistic for Member States;
  • Recalling the urgency to achieve full completion of the Banking Union, including a credible fiscal backstop at the Union level, in order to avoid eventual shocks caused by a large bank bailout;
  • Considering that the obligations and conditions for the fiscal support of a Member State through the European Stability Mechanism (ESM) must be established in a democratic and transparent fashion;
  • Considering that this applies, in particular, to the ESM’s governance structure in light of its possible evolution into a European Monetary Fund;
  • Acknowledging that the economic governance reforms adopted in the aftermath of the Sovereign Debt Crisis through the adoption of the Six Pack, the Two Pack, the ESM Treaty and the Fiscal Compact managed to deal with the immediate emergencies, but could not provide the Eurozone with effective tools to boost economic growth and promote social cohesion;
  • Acknowledging that some proposals for Eurozone governance reform would require a revision of the Lisbon Treaty;
  • Clarifying that the short-term in this resolution refers to the near future in which the Eurozone and the EU are institutionally distinct, that in the medium-term separate institutional structures between the Eurozone and the EU will merge, and that the long-term will see the development of fully federal European institutions;

JEF Europe, therefore,

1. Calls on all EU Member States to join the Euro, when they fulfil the criteria;
2. Stresses that the EU, and in particular the Eurozone, need to deepen integration in the fields of economic, social and fiscal policy;
3. Supports the objective to achieve a full political union in the framework of the Eurozone as outlined in the Blueprint on a genuine EMU and the so-called 5 Presidents’ Report of June 2015;

Over the short term:

4. Urges the European Parliament and the Council, both within themselves and among each other, to agree on the full implementation of the Banking Union’s final pillar, a credible and appropriately sized European, and eventually fully mutualised common deposit insurance scheme replacing the national insurance schemes to minimise the risk of bank runs and to further financial stability in the Union;
5. Urges the European Commission to bring forward more ambitious proposals on breaking the sovereign-bank loop in the Union, which is a continuous threat, for example by considering the introduction – in parallel with proper risk-sharing mechanisms, such as a European Deposit Insurance Scheme and a European Safe Asset – of exposure limits or non-zero risk-weighting for sovereign debt;
6. Calls for completion of the Capital Markets Union, including the harmonisation of insolvency laws across the Union and the introduction of a single European supervisor for capital markets, as freer investment flows would allow a better distribution of financial risks among market actors and end the home bias in investment patterns, resulting in an improved capital allocation across the Union;
7. Calls for implementation of genuine Eurozone own resources, to be collected by national tax agencies under the coordination of the European Commission – Directorate General Taxation and Customs Union, in support of European policy goals and providing European added value when levied at the European level. Such own resources could include, among others:

    • A Financial Transaction Tax to complement the Capital Markets Union,
    • A bank levy, either based on the Common Consolidated Corporate Tax Base (profits) or on the Value-Added-Tax (value added);
    • A portion of the net profit produced by the ECB operations in monetary policy;

8. Notes that raising an adequate amount of own resources at Eurozone level to finance a newly established Eurozone budgetary capacity would relieve those Member States from providing GNI-based contributions, thus avoiding raising the overall tax burden for EU citizens residing in the Eurozone;
9. Calls for the creation of a budgetary capacity for the Eurozone,– established within the Union budget, but excluded from ceiling calculations for commitments and payments under the multiannual financial framework –  financed by genuine own resources, for the purpose of macroeconomic stabilisation. Amongst the main tasks to be carried out with such a budgetary capacity would be, at a minimum, the financing of an unemployment benefit scheme at Eurozone level and a permanent mechanism for public investment as a first line of defence against asymmetric economic shocks in the Union and to smooth the adverse short-term effects of structural reforms carried out by Eurozone Member States;
10. Calls for full involvement of the European Parliament in decisions regarding the management of the Eurozone budget;
11. Further encourages the inclusion of a budget line in the Eurozone budget aimed at accelerating the adoption of the Euro as the common currency by all Member States;
12. Calls for the introduction of credible market-led budget constraints for Eurozone members, such as the requirement to issue all debt in excess of the fiscal rules as subordinated debt, in lockstep with the introduction of a common bond issuance programme for all sovereign debt in scope of the common fiscal rules, providing strong incentives for sound and prudent fiscal policies on Member State level;
13. Demands that the Eurozone members implement sustainable fiscal policy measures and strictly follow the common fiscal rules;
14. Calls for integrating within the framework of EU law the relevant provisions of the European Fiscal Compact, and the European Stability Mechanism (ESM) treaty, provided there is appropriate democratic accountability, and on the basis of an assessment of their implementation, ensuring full involvement of the European Parliament in this process;
15. Calls for a reform of the ESM/EMF governance structure and decision-making process in line with the current governance structure and decision-making process established for the European Central Bank;
16. Urges the Eurozone Member States to stock the ESM appropriately to provide the Banking Union with a credible fiscal backstop;
17. Calls for increased reflection on the handling of legacy problems in the Union, particularly with regard to the problem of high numbers of Non-Performing Loans on bank balance sheets in some countries of the Eurozone, hampering economic growth and appropriate lending, including on the proposal for the introduction of a European zombie bank as suggested by the European Banking Authority;
18. Calls for the creation of a European High Authority (HA) for Economic and Financial Affairs, as a first step before establishing an EU Finance Minister in the longer term. This HA would merge the roles of Vice-President of the Commission in charge of Economic and Financial Affairs and of Chair of the Eurogroup. As such, the HA would also oversee the ESM and the budgetary capacity of the Eurozone. The HA would be accountable to the European Parliament;
19. Calls on the Eurogroup to integrate all non-Euro members of the EU, who would hold a right to observe the meetings and speak, but not vote;

Over the medium term:

20. Calls for the EU to be able to levy taxes directly in areas of policy where it has exclusive or shared competence;
21. Calls for decisions relating to the EU’s fiscal competence to be taken through the ordinary legislative procedure;
Further asks that these taxes be levied autonomously by an EU tax agency located within the European Commission, in close cooperation with national tax collectors;
22. Calls for the EU to be entrusted with the ability to issue bonds on the EU level, backed by the EU budget, as a means to smoothen the impact of the economic cycle on the tax base and reduce the volatility connected to European own resources;
23. Considers that the Single Supervisory Mechanism (SSM) and the ECB should be institutionally separated to avoid conflicts of interests;
24. Believes that the success of the European project will depend on the concrete steps towards European Federation taken by those Member States willing to further share sovereignty also in areas going beyond economic policy;

Over the long term:

25. Believes that the High Authority for Economic and Financial Affairs should cease to exist in a European Federation, and be replaced by an EU Finance Minister;
26. Believes that in a fully-fledged Federation, the Eurogroup would cease to exist and the current Council formation of Economic and Financial Affairs would be replaced by a Committee on Economic and Financial Affairs in the European Senate, representing the Member States;
27. Believes that, in order to ensure the separation of powers between the executive, the legislative, and the judiciary, the ECOFIN Committee of the European Senate should elect a chair from among its ranks, and the HA should cease to chair its defunct predecessor, the Eurogroup.

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