EMU Reform

Abstract

Discourse concerning EMU reform is complex. This is in part because of the inherent complexity of the subject matter, and in part because the outcome, whatsoever that might be, will not be determined purely by economics. The EU is quintessentially the art of the possible, and politics is of considerable importance in determining the parameters in this respect. There is, moreover, a temporal dimension to discussion of EMU reform, which in this context signifies the fact that the likely direction of change emerges over time, with successive high-level reports operating incrementally to lay the groundwork for change. Thus, the key staging posts for the next stage of EMU reform include the Four Presidents’ Report, the Five Presidents’ Report, the Commission’s Reflection Paper, and its 2017 Roadmap for completion of EMU.

This chapter looks at the proposals made by the EU institutions concerning EMU reform. It does not purport to exhaustively examine all aspects of this rich debate. In what follows, the principal emphasis will be on the economic pillar of EMU, which the prevailing view holds to be much less developed compared to the monetary pillar of EMU. This was believed to be one of the factors that contributed to, and aggravated, the Euro crisis. As such, the bulk of the EU institutions’ proposals focus on reform of the ‘E’ of EMU. We will further look at the proposed measures concerning the Banking and Capital Markets Unions, which are nowadays considered to be core parts of or complements to EMU. Proposals put forward in the relevant literature, which link to the reforms examined here, will also be considered where appropriate.

The discussion will proceed as follows. The chapter begins with a brief analysis of the challenges facing multi-level, or decentralized, systems of economic governance and the EMU’s setup in response to these challenges prior to the crisis (section 2). The aim is to highlight the various ways in which the measures that were adopted in response to the financial and public debt crisis plugged the gaps in the Maastricht framework. The discussion is further aimed to highlight the deficiencies that remain to this day. The focus then shifts to proposals on EMU reform, which are closely linked to the challenges identified in section 2. We will focus on the economic pillar of EMU, viz., reforms to the EU’s fiscal and economic governance framework (section 3); structural reforms at the Member States (section 4); and the proposed macroeconomic stabilization function for the Euro area (section 5). The penultimate section examines the proposals aimed to complete the Banking Union and to deepen the Capital Markets Union (section 6). It further focuses on the creation of new financial instruments, such as the so-called Sovereign Bond-Backed Securities and the European Safe Asset. The final substantive section examines accountability in a reformed EMU (section 7).

Keywords: monetary union, economic union, EU fiscal policy, accountability, legitimacy, financial crisis, banking union