Tag Archives: Economic and Monetary Union

The Tedious Necessity of Treaty Revisions

The spirit of reform is haunting Europe once again. There’s talk of political union, scrapping EU institutions, and even leaving the European Union altogether. I can only sympathize with this spirit of reform and creative destruction. But one thing worries me – the lack of apprehension of the legal foundation of the EU.

The European Union is not a tribal clan. It is a supranational organization based on law, and encompassing an intricate network of rules that makes the whole thing possible. Having ideas about reform is cool, but reform necessitates the revision of the Treaties by the prescribed procedures.

That is why a political union cannot happen on a short notice. It will have to go the long way through the ordinary revision procedure, since it will provide new powers to the EU (art. 48 TEU). This is also the case with scrapping the European Economic and Social Committee, for example (it changes the institutional framework of the EU). As for the potential quitting of the EU by the United Kingdom, a more detailed legal analysis is needed in order to calculate all the costs and provisional time-frames for such a move.

Whatever the spirit of reform brings to the table, we need to execute reform legally. Backdoors are not available (see the position of Otmar Issing against the adoption of a political union through the backdoor of a monetary union).



Commission’s Consultation on Bank Failures – Too Little, Too Late?

The European Commission has launched a consultation on technical details underpinning a European crisis management framework for the financial sector. The main measures proposed:

  • Preparatory and preventative measures such as a requirement for recovery and resolution plans and powers for authorities to require banks to make changes to their structure or business organisation where such changes are necessary to ensure that the institution can be resolved;
  • Powers for supervisors to take early action to remedy problems before they get out of hand such as the power to change the managers;
  • Resolution tools which empower authorities to take the necessary action, where bank failure cannot be avoided, to manage that failure in an orderly way;
  • A framework for cooperation between national authorities.

The two main principles proposed by the Commission are:

  • Effective arrangements which ensure that authorities coordinate and cooperate as fully as possible in order to minimise any harmful effects of a cross-border bank failure, and
  • Fair burden sharing by means of financing mechanisms which avoid use of taxpayer funds.

Now, the problem is that we already have a situation that may well get out of hand. Fortune has quoted Scott Minerd, chief investment officer at Guggenheim Partners, who thinks the entire banking system of Europe could be on the brink of disaster (I recommend reading the whole article). If this is true, the Commission’s initiative will not have the time to translate into meaningful EU policy. More, the proposal is not sufficient to solve the problems of the EU banking sector, which is heavily exposed to sovereign debt.

Scott Minerd says that it’s now up to Germany to take leadership in organizing a fiscal union and creating a common EU bond. He rightly points out that this means a true federalization of the European Union, since fiscal policy will be, to some extent, managed on EU level.

In other words the impending banking crisis in the European Union could result in a true federalization – the dream of the founding fathers of the EU. But it sounds simpler than it actually is. Many things can go wrong, and the markets are not exactly ready to accommodate the Hamletian dilemmas of EU Member State governments. The recent approach of Germany and France to coordinate positions and try to sell them as unconditional proposals is not sustainable. EU governments should discuss options multilaterally, taking into account varying positions and nuances. We need true European consensus on fiscal governance, not empty declarations on the centrality of the Economic and Monetary Union.

End of the Eurozone as We Know It?

There’s more and more news that the International Monetary Fund will be the main driver of a bail-out for Greece. Laurence Boone says that the IMF solution, possibly with a couple of bilateral loans, may be the “easiest” way out of the maze.

Wolfgang Münchau is very critical of this approach. He says that the eurozone, as it works today, is not a monetary union but a souped-up fixed exchange rate system. According to him three essential elements – a bail-out system, an agenda to reduce imbalances and a common banking system, are lacking in the eurozone.

So now the question is – is it THAT serious?

Delors: Europe Is Suffering from Memory Erosion

Patrice Cardot summarizes some of the current thinking of Jacques Delors on the challenges and the opportunities of the European integration.

One of the most interesting ideas of Mr. Delors is that Europe suffers from memory erosion. He then criticizes the “enlargement first, deepening second” approach, because the institutions of the Union were not prepared to function with 27 Member states.

Jacques Delors is quite critical of the Economic and Monetary Union, because the introduction of a common currency has not been a driver for political coordination. This lack of macroeconomic political coordination has weakened the eurozone.

He thinks that now the European Union oscillates between “Europe of the nation states” and Community Europe, and the decision making process has become less efficient.

Once again Jacques Delors reminds the idea of Hans-Dietrich Genscher that while none Member State should be forced into further integration, but it should not have the opportunity to stop other Member States from advancement of integration.