2 Economic and Monetary Union
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| Towards a genuine Economic and Monetary Union: Interim Report
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| Legal base | —
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| Deposited in Parliament | 17 October 2012
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| Department | HM Treasury
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| Basis of consideration | EM Minister's letter of 16 October
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| Previous Committee Report | None
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| Discussion in European Council | 18-19 October 2012
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| Committee's assessment | Politically important
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| Committee's decision | For debate on the Floor of the House, together with the proposals for a Banking Union[3]
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Background
2.1 At the European Council of 28-29 June "the
President of the European Council was invited to develop, in close
collaboration with the President of the Commission, the President
of the Eurogroup and the President of the ECB, a specific and
time-bound road map for the achievement of a genuine Economic
and Monetary Union". The intention was for an interim report
to be presented at the European Council of 18-19 October and a
final one to be presented at the December European Council.
The document
2.2 This is the interim report, which builds
on ideas expressed during bilateral meetings in September with
all Member States and the European Parliament. It outlines areas
for further work ahead of the final report due in December. The
report focuses on the eurozone as its members face specific challenges
from sharing a currency. It is clear that the process must be
fully compatible with the single market in all aspects. The report
has four substantive sections.
Integrated Financial Framework
2.3 The report notes that the proposed Single
Supervisory Mechanism (SSM),[4]
which is a matter of priority, has three elements:
· a clear separation between European Central
Bank monetary policy and supervisory functions;
· a balance between rights and obligations
for all Member States participating in the new supervisory arrangements;
and
· appropriate accountability of the new
single supervisor, including to the European Parliament.
It also states that the SSM should operate consistently
with the single market and, as such, the European Banking Authority
(EBA) would maintain its roles in implementing a single rulebook
and as a mediator of the other various supervisory bodies. However,
the EBA voting modalities would need to be adapted.
Integrated Budgetary Framework
2.4 The report describes the first priority as
being the need to complete and implement the new steps for stronger
economic governance (the 'Six Pack' of legislation strengthening
the Stability and Growth Pact, the Treaty for Stability Coordination
and Governance (SCG) and the 'Two Pack' of proposed legislation
aimed at strengthening economic governance in the eurozone). Secondly,
alongside stronger fiscal discipline, it outlines the need for
a fiscal capacity for the Economic and Monetary Union (EMU), which
could take various forms. It puts forward two possible functions
for this fiscal capacity — a facility to tackle country-specific
shocks by providing some degree of central absorption and a facility
to incentivise structural reforms. The report also states that
a fully-fledged integrated budgetary framework would require the
establishment of a treasury function with clearly defined fiscal
responsibilities. It says finally that, to prevent contagion,
the pooling of some short term sovereign funding instruments (for
example, treasury bills) on a limited and conditional basis could
be examined further.
Integrated Economic Policy Framework
2.5 The report highlights the importance of completing
the single market as a way to address some of the weaknesses in
institutional quality, labour market and business climate indicators.
It also identifies rapid implementation of the measures included
in the June 2012 Growth and Employment Compact as a top priority.
The report introduces the idea of individual contractual arrangements
between eurozone Member States and the EU institutions on the
reforms promoting growth and jobs these countries commit to undertake
— these reforms could be those identified in the country-specific
recommendations of the Council and be supported by limited, temporary,
flexible and targeted financial incentives. It also raises the
idea of some kind of eurozone ex ante coordination of major
economic policy reforms with spill over effects for the eurozone.
Finally, the report proposes that to avoid large and rapid build
up of economic imbalances, macro-prudential policy tools could
be provided to the single supervisor foreseen in the draft legislation
on the SSM.[5]
Strengthened Democratic Legitimacy And Accountability
2.6 The report highlights the principle that
democratic control and accountability should occur at the level
at which the decisions are taken. It discusses how the European
Parliament should be more involved in EU procedures, suggesting
it should hold debates on the recommendations adopted in the context
of the European Semester. It also notes the importance of "maintaining
and securing the pivotal role of national parliaments, as appropriate"
and that:
"A number of concrete steps to increase the
level of cooperation between national parliaments and the European
Parliament can also be taken, building on Article 13 of the Treaty
on Stability, Coordination and Governance and on Protocol 1 of
the Treaty on the Functioning of the European Union, in the respect
of the Community method. In this spirit, ways to ensure a debate
in the European Parliament and in national parliaments on the
recommendations adopted in the context of the European Semester
should be explored."
The Government's view
2.7 In his letter agreeing to deposit of this
document the Financial Secretary to the Treasury (Greg Clark)
says that:
"… the European Council will not actually
reach decisions on the document. Rather, it is expected to discuss
the report and note that a further report will be produced for
the December Council. As such, in this instance, the normal scrutiny
reserve resolution would not operate. Going forward we will ensure
as far as possible that the final report, published before the
December European Council, is made available to the Committee
so it can provide its views and report to the House. However,
as you know, the timing of the presentation of these reports rests
with the President of the Council and the time between presentation
and the Council will always be very short."
2.8 In his Explanatory Memorandum the Minister
says that:
· the Government welcomes the report's focus
on the eurozone Member States and agrees that they face specific
challenges by virtue of sharing a currency; and
· it also welcomes recognition that this
process must be fully compatible with the single market in all
its aspects.
2.9 The Minister then comments further on the
four sections of the report, saying that:
Integrated Financial Framework
· a separate Explanatory Memorandum has
been provided on the Commission's proposals for a SSM;[6]
Integrated Budgetary Framework
· there are no formal proposals contained
in the report;
· the Government agrees that a priority
is to complete and implement the new steps for stronger economic
governance that have recently been agreed, or are currently under
discussion, including the Commission's 'Two Pack' proposals for
the eurozone;
· the ideas for a eurozone fiscal capacity
are interesting — further detail would be needed for a proper
analysis of such proposals;
· in the meantime, the Government agrees
these proposals could be explored as part of this work —
this will need consideration of how this would be financed, the
purpose and legal issue and any relationship to other eurozone
facilities;
· the Government is clear that funding would
be for the eurozone;
· ideas for eurozone treasury bills have
been put forward by external commentators —these ideas could
be considered as part of this process;
An Integrated Economic Policy Framework
· there are no formal proposals in this
area and these ideas are rightly focussed on the eurozone;
· there is little detail of how "individual
agreements of a contractual nature" would work in practice;
· these arrangement might increase incentives
for eurozone Member States to carry out reforms;
· the Government would need to see further
detail before taking a position but is content for these proposals
to be explored as part of this work;
· ex ante coordination would likely
involve Member States sharing details amongst themselves of major
reforms before they are implemented;
· again, there is little detail of how this
would work in practice and the Government would need to see further
detail before determining its position;
Strengthened Democratic Legitimacy and Accountability
· there are no concrete proposals in this
section of the report, however it suggests relying on the European
Parliament for accountability for decisions at EU level, but also
retaining the role of national parliaments, as appropriate, but
does not explain what this means in practice; and
· the Government is clear that there should
be further consideration of how "we can use" national
parliaments to enhance legitimacy and oversight.
Conclusion
2.10 Although purportedly
there would be no direct impact on the UK by the measures foreshadowed
by this document, there is potential for harm to UK interests,
particularly in relation to the single market. So we presume the
Prime Minister will be cautious in expressing any support during
the forthcoming European Council for the elements outlined in
the report.
2.11 As for the role of national parliaments
in ensuring democratic legitimacy and accountability we are concerned:
· at the implications of the apparent
presumption in the report about the primacy of the European Parliament;
and
· the presumption that democratic legitimacy
and accountability of a new strengthened EMU framework and cooperation
under Article 13 of the SCG treaty should only be explored within
the context of the European Semester.
We remind all concerned in this debate that national
parliaments are representative of sovereign states. Incidentally,
we note the rather odd phraseology — "we can use"
— the Minister deploys. We presume he does not actually
mean that governments use parliaments.
2.12 These matters are of high importance
for the UK. So, ideally we would wish to recommend for debate
the final report on them, that is to be presented to the December
European Council, before that meeting. But given the likely timing
of its publication we recognise that this will prove impracticable.
So instead, we recommend that this present document, which does
show in broad terms the thrust of the thinking of the four authors,
be debated, for three hours on the Floor of the House, together
with the Banking Union documents discussed in Chapter One of this
Report.
2.13 In making this debate recommendation
we note, notwithstanding the Minister's comments, that the document
will not be cleared from scrutiny until the debate takes place
and take the view that actions by the Government which amounted
to agreement of the report would be a serious breach of the scrutiny
reserve.
3 See chapter 1 of this Report. Back
4
Ibid Back
5
Ibid Back
6
Ibid. Back
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