22/01/2013

Whilst a range of measures have been enacted to face up to Europe's debt crisis in the shorter term, it is broadly accepted that economic integration must be furthered so as to be commensurate with monetary union.

The crisis has exposed structural weaknesses in the original design of economic and monetary union (commonly referred to as EMU), and EU leaders are currently working to address these.

Building a sounder structure

Following a series of reports by the President of the European Council ("Towards a genuine Economic and Monetary Union", June - December 2012) as well as the presentation of a comprehensive "Blueprint for a deep and genuine EMU", the European Council agreed in December 2012 to develop over the coming years a framework for the euro area that addresses the flaws in its initial architecture. The framework must be sound, fair and transparent, and should remain open to all EU countries.

It will cover four main areas.

Banking union

Progress towards a banking union is already underway. Negotiations on the establishment of a single supervisory mechanism, under which the European Central Bank and national supervisors will closely coordinate the oversight of banking institutions in the euro area as well as in those non-euro area countries participating, are at an advanced stage.
 
The Council established a general approach on the proposals in December 2012, and negotiations with the European Parliament are currently underway.

The banking union will also feature:

• a single resolution mechanism, to safeguard financial stability if banks fail and to ensure that taxpayers' money need not be used in the event of a bailout
• a harmonised framework for deposit guarantee schemes that ensure the safekeeping of private savings.

In December 2012, the European Council urged legislators to agree on these proposals by June 2013. For its part, the Council should reach agreement by the end of March 2013. Once adopted, the proposals should be implemented by the member states as a matter of priority.

Fiscal sustainability

The second main area of the EMU plan is fiscal policy. Work here has also made good progress.

Strengthened provisions are being prepared for the surveillance of budgetary policies of euro area member states. They will complement fiscal and macroeconomic surveillance provisions enacted in 2011.

The so-called fiscal compact, i.e. the Treaty on Stability, Coordination and Governance in the EMU, entered into force on 1 January 2013. And further fiscal policy instruments will be developed in the coming months.

Strengthened economic policy coordination

The smooth functioning of EMU calls for stronger coordination and better enforcement of economic policy.

Much has already been done in this area, in particular with the introduction of an annual macroeconomic imbalances procedure aimed at identifying and correcting imbalances in the member states.

In June 2013, EU leaders will consider proposals to enhance the coordination of major economic policy reforms in member states and the social dimension of EMU, as well as legally binding contractual arrangements aimed at enhancing competitiveness and growth.

The President of the European Council will present possible measures and a timeline for implementation to the June 2013 European Council, in close cooperation with the President of the Commission and after consultations with the member states.

Democratic legitimacy

Finally, the plan is intended to ensure the necessary democratic legitimacy and accountability at the same level as that at which decisions are taken.

In particular, this will be possible thanks to reinforced cooperation between national parliaments and the European Parliament.