Download 10. Economic and Monetary Union - AUEB e

Economic and Monetary
Union
The EU has as an objective the
establishment of the EMU
The Institutions
• The EUROPEAN SYSTEM of Central Banks
• It comprises the European Central Bank(ECB)
and the National Central Banks (NCBs).
• The basic tasks: to define and implement the
monetary policy of the EU/to conduct foreignexchange operations/to hold and manage the
official foreign reserves of the MS/to promote the
smooth operation of payment systems.
• The ESCB is governed by the decision-making
bodies of the ECB: the Governing Council and
the Executive Board.
The European Central Bank
• Within the ESCB, the ECB has certain defined
tasks: to supply of money (it authorizes the issue
of euros and sets short-term interest rates for
the euro)/to make regulations (on minimum
reserves for credit institutions and where the
Council provides on the prudential supervision of
credit institutions)/it has executive powers (it can
instruct the NCBs)/it can impose fines on
undertakings/It is to be consulted on all
proposed EU or national measures that fall in
areas within its responsibilities.
The principles
Article 130 TFEU regulates the ECB’s
independence and accountability. ECB shall not
seek or take instructions from EU institutions or
from national governments.
It has a separate legal personality and
organizational autonomy.
It has financial and accounting independence (2633 of the Protocol).
The same principles are applied as regards the
national central banks.
The Governing Council
• The Governing Council’s meetings are confidential. The
ECB has the power to make or not its deliberations
public.
• The external relations of the euro-zone (Article 219
TFEU). The competence belongs to the Council acting
unanimously.
• The management of exchange rates between the euro
and the currencies of the other Ms takes place in the
context of Exchange Rate Mechanism II(1999).
Participation in the ERM II is voluntary for the non eurozone MS. The exchange rate can fluctuate within a band,
normally set at +/- 15% around the central rate. All other
currencies are floating freely against the euro.
The excessive deficit procedure
• As early as 1997 a compromise was agreed
where the figure of 3% would not be applied in
an exceptionally severe economic downturn.
• As of 1 December 2009, twenty of Ms have been
found to have an excessive deficit.
• A relative procedure can lead theoretically to the
levying of very heavy fines on the national
governments.
• Excessive deficits are either an annual
government deficit of more than 3 % of the GDP
or a government debt of more than 60% of GDP.
(Articles 126 TFEU, 1 of the Protocol).
Economic surveillance
• Ms must coordinate their national policies. They
have to treat them as a matter of common
concern (Article 121 TFEU).
• The procedure works by guidelines that are
extremely wide-ranging. There are concerning a
lot of policy fields (education, environment,
employment, social security etc).
• It is soft law with no strong sanctions and many
of the guidelines express medium-terms targets.
• The effectiveness of the surveillance mechanism
was very week.
The European Economic
Governance
• The lessons learned from the financial, economic
and sovereign debt crisis have led to successive
reforms of the EU’s rules, introducing among others
new surveillance systems for budgetary and
economic policies, and a new budgetary timeline.
• A genuine EMU:[i) integrated financial framework, ii)
integrated budgetary framework, iii) integrated
economic policy framework, iv) democratic
legitimacy and accountability]
• The new rules: 1) the Six Pack rules, 2) the Two
Pack rules, 3) the Treaty on Stability, Coordination
and Governance, 4) The Euro Plus Act, 5) The
Banking Union rules.
The six-pack
• The six-pack is composed of five Regulations
and one Directive. They are EU secondary law
and apply to 28 MS, with some specific rules for
euro-area MS, especially regarding financial
sanctions.
• They have entered into force on 13 December
2011.
• They cover fiscal and macroeconomic
surveillance. They introduce the European
Semester.
• In the fiscal field, they strengthen the Stability
and Growth Pact (SGP).
• MS’ budgetary balance shall converge towards the
country-specific medium-term objective (MTO) (so-called
preventive arm)
• The general government deficit must not exceed 3% of
GDP and public debt must not exceed 60% of GDP (or
at least diminish sufficiently towards the 60%)
• Financial sanctions for euro-area MS are imposed in a
gradual way, and may eventually reach 0,5% of the
GDP.
• It is introduced the reverse qualified majority voting
(RQMV), i.e. the recommendation of the Commission is
considered adopted in the Council unless a qualified
majority of MS votes against it.
The TSCC
• The TSCC is an intergovernmental agreement (not EU
law). It has been signed on the 2.3.2012 by 25 EU MS
(all but UK and Czech Republic).
• It enters into force following ratification by at least
twelve euro-area MS. It will be binding for all euro-area
MS, while other contracting parties will be bound once
they adopt the euro or earlier if they wish.
• The Fiscal part of the TSCC is referred to as “fiscal
Compact”. Contracting parties have to ensure
convergence towards the country-specific MTO.
Correction mechanisms should ensure automatic
action.
• The country specific MTOs have to be enshrined
in national binding law, preferably of
constitutional nature.
• European Court of Justice may impose financial
sanctions
• The RQMV applies to all stages of the Excessive
Deficit Procedure, even if not foreseen in the sixpack.
• It reinforces the economic governance in the
euro area, e.g. Euro Summits at least twice a
year and reinforced economic cooperation.
The two pack
• Two Regulations (2013) of the EP and of the
Council. They are applicable to euro-area MS
and aim at further strengthening the surveillance
mechanisms.
• Common budgetary rules at the national level
shall be monitored by independent institutions.
• The Commission analyses if the draft budget is
in line with the Stability and Growth Pact. It can
require a revised draft budgetary plan.
Otherwise it may address an opinion to the MS,
which would also be discussed by the Eurogroup.
• The NP remain fully sovereign in voting the
budget law.
• The Regulation incorporates elements of the
TSCC: independent institutions and an ex ante
coordination of debt issuance plans.
• MS facing serious difficulties will be subject to
enhance surveillance. MS are obliged to adopt
the necessary measures. If not, they face
financial consequences.
• MS shall be subject to post-programme
surveillance as long as it has not repaid 75% of
its debt.
A Pact for the Euro
• Euro area Heads of State and Government have
decided to adopt a Pact for the Euro to
strengthen the economic pillar of the monetary
union (11 March 2011)
• 23 MS signed the Euro Plus Pact. It commits
signatories to even more economic coordination
for competitiveness and convergence, also in
areas of national competence, with concrete
goals agreed on and reviewed on yearly basis
by the European Council.
• The Euro Plus Pact is integrated into the
European semester and the Commission
monitors implementation of the commitments.
• MS undertake to take all necessary measures to
pursue the following objectives: 1) foster
competitiveness, 2) Foster employment, 3)
secure public finances and 4) reinforce financial
stability.
• The choice of the specific policy actions remains
the responsibility of each country.
The Banking Union
• The EU established in 2010 the European System of
Financial Supervision:1) European Systemic Risk Board,
2) European Banking Authority, 3) European Insurance
and Occupational Pensions Authority, 4) European
Securities and Markets Authority.
• Moreover, rules on capital requirements for banks,
investment firms and insurance companies. Finally, Bank
stress tests have been conducted.
• The banking Union aims at safeguarding financial
stability and minimize the cost of bank failures.
• It will composed of the: 1) Single Supervisor Mechanism
2) Single Resolution Mechanism, 3) A European Deposit
Insurance Scheme [EDIS].
• If a bank fails, the SRM intervenes.
• The supervision powers include the possibility of dismissing
the management and appointing a special manager, and
prohibiting the distribution of dividends and bonuses. Other
measures are requiring the bank to reduce its exposures to
certain risks, increase its capital, or implementing changes
to its legal and corporate structures
• Bank deposits in all Ms are to be guaranteed up to 100.000
euro per depositor per bank even if a bank fails.
• The full insurance of depositor would fall under EDIS from
2024 onwards.
Conclusion
• In a full fiscal and economic union,
concomitant with the EP’s competence to
decide on the resources of a substantial
central budget, the EU must have the
competence to issue sovereign debt, to
guarantee the principles of unity, equality
and solidarity, and the objective of the
well-being of its peoples, if not its people.