Doris Ritzberger-Grünwald Completing European Economic and Director Oesterreichische Nationalbank Monetary Union: next steps

“Completing Europe’s Economic and economic policies of euro area Member Monetary Union” is the title of a sig- States. The greatest progress has prob- nificant report authored by the five ably been made with respect to the Presidents of the European Union banking union, although the important (Commission, Council, Eurogroup, element of a cross-border deposit insur- ECB and Parliament) published in ance scheme is still under negotiation. 20151. But what exactly makes Euro- Moreover, the process of creating a cap- pean Economic and Monetary Union ital markets union has already been (EMU) incomplete? Some might joke started, but its completion is likely to that EMU lacks a 6th President. Indeed, take decades. The strengthened Stabil- the number of institutions responsible ity and Growth Pact has contributed to for economic policy already indicates a decline in public debt in almost all that EMU might have a governance issue.­ Member States, while the newly created To put it simply: What makes EMU European Fiscal Board helps not to lose unique is that it does not comprise just track of the optimal fiscal stance of the a single state. And since there is no po- euro area as a whole. litical will to create the United States of Additionally, the European Com- Europe, the euro area must mimic the mission suggested further innovations, most essential functions of a state. such as Sovereign Bond-Backed Securi- This is why the proposal of the five ties (SBBS), i.e. privately placed securities Presidents rests on four pillars: first, an with­out joint liability. Furthermore, the economic union that promotes conver- Commission proposed two new instru- gence, prosperity and social cohesion; ments within the new Multiannual Finan- second, a financial union that integrates cial Framework 2021–2027: a new Reform banking and capital markets regulation; Support Programme with an overall third, a fiscal union that guarantees budget of EUR 25 billion and a Euro- sound public budgets and sufficient pro- pean Investment Stabilisation Function vision of public goods; and fourth, a in the form of subsidized back-to-back ­political union that strengthens demo- loans of up to EUR 30 billion. Moreover, cratic accountability, legitimacy and in- the Meseberg Declaration2 of France stitution building. Undoubtedly, “com- and Germany proposed the establish- plete” does not necessarily mean perfect ment of a euro area budget to promote – even the dollar area is far from perfect. competitiveness, convergence and sta- Nevertheless, the tone of the European bilization in the euro area, including Commission has become a bit more ­investment in innovation and human pragmatic as it now talks about “deep- capital. This budget line would be based ening EMU” rather than “completing on an intergovernmental agreement EMU.” within the EU framework; its size yet Since the crisis, a couple of mea- needs to be specified. Putting aside any sures have been taken to deepen EMU. doubts about EU-wide agreement on As a case in point, the European Semes- these measures, the following question ter was established to better coordinate remains: Will they indeed be the game

1 Juncker, J.-C., D. Tusk, J. Dijsselbloem, M. Draghi and M. Schulz. 2015. Completing Europe’s Economic and Monetary Union. European Commission. 2 German Federal Government. 2018. Meseberg Declaration: Renewing Europe’s promises of security and prosperity. June 19.

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changer wished for or merely “baby Our second contributor, Bruno of Economic Experts (Sachverständi- steps on eurozone reform” as financial ­Cabrillac, presents other bold and vision- genrat), an independent advisory body observers called it?3 ary approaches. His discussion focuses of the German government. She is Re- on the following questions: Will a resil- search Fellow at the Centre for Eco- ient EMU take more than the consen- nomic Policy Research (CEPR) and at sual measures voiced by the Commis- the CESifo, as well as Research Affiliate sion and the Franco-German group of (prior to that Senior Research Fellow) economists? Will the Five Presidents’ at the Max Planck Institute for Research Report be implemented, or will it be on Collective Goods in Bonn. Isabel replaced by another vision? What are Schnabel received her doctorate from the major political disagreements and the University of Mannheim. She was a technical obstacles to achieving our Visiting Scholar at the International goals? How can we overcome them? Monetary Fund, the London School of cial Supervisory Authority (BaFin) and And last but not least, one of the main Economics and Harvard University. is a member of the Advisory Scientific questions for central bankers: How can ­Isabel Schnabel chairs the Advisory Committee (ASC) of the European Sys- the euro help Europe contribute to a Council of the German Federal Finan- temic Risk Board (ESRB). ­financially more stable and economically In December 2018, a Franco-Ger- more prospering world? man group made up of fourteen well- Finally, let me briefly introduce this known economists4, including Isabel section’s contributors: Bruno Cabrillac Schnabel, our first contributor, proposed is Deputy Director General of Econom- a comprehensive reform package calling ics and International Relations at the for the following: first, introducing Banque de France. Between 2008 and sovereign concentration charges for 2016, he was Director of Economics banks, common deposit insurance and and International European Relations. strengthened mechanisms to bail in He entered the Banque de France in creditors of failing banks; second, re- 1984, serving as economist initially in placing the current system of fiscal the Foreign Relations Department, then rules with a simple expenditure rule in the Research and Forecast Depart- guided by a long-term debt reduction ment. He was seconded to the Ministry target; third, establishing the economic, of Finance as Financial Counsellor in legal and institutional underpinnings Cairo and Tokyo, having worked as a for orderly sovereign debt restructuring foreign exchange and bond trader for of insolvent countries; fourth, setting eighteen months prior to that. In 1997, up a euro area fund that helps partici- he was appointed Head of the African pating Member States absorb large eco- Department (Zone Franc) of the Banque nomic disruptions; fifth, creating a syn- de France. In the early 2000s, he became thetic euro area safe asset as an alterna- Trade Commissioner and Banque de tive to national sovereign bonds; and France representative in Hong Kong sixth, designing a new euro area insti- and Macau, and later Financial Coun- tutional architecture, with institutional sellor for Africa at the French Ministry surveillance being separated from po- of Finance. litical decision-making by creating an Isabel Schnabel is Professor of Finan- independent fiscal watchdog within the cial Economics at the University of Bonn European Commission. and a member of the German Council

3 https://seekingalpha.com/article/4226361-eurozone-filibuster-eurozone-reforms-continues. 4 https://voxeu.org/article/how-reconcile-risk-sharing-and-market-discipline-euro-area.

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