EU leaders tackle eurozone reform

Breaking News June 28, 2018 09:49

By Agence France-Presse
Brussels

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After months of delay, EU leaders on Friday will discuss several proposals, many watered down, to reform the euro single currency after the bitter battering of the debt crisis.



The bloc's 27 leaders meeting without Britain will largely work off proposals set down with great pomp by France and Germany, known as the Meseberg Declaration, after the site of a recent meeting between Chancellor Angela Merkel and President Emmanuel Macron.

Europe's twin engines of EU unity, France and Germany make up nearly half of the eurozone economy. But smaller members, led by the Netherlands, have voiced their irritation at having the EU's future announced from on high by the bloc's biggest powers.

Eurozone budget

First the bad news for Paris.

National governments have for months been haggling over a French idea of creating some sort of budget capacity for the 19-nation single currency bloc which could be used in case of crises or economic shocks.

Even if modest, Macron sees a eurozone budget as a symbolic step towards a more centralised and mutually supportive Europe.

But austerity-loving hardliners, usually led by Germany, fear an unnecessary transfer union, with disciplined countries in the north propping up over-spenders to the south (think Greece or Italy).

In Meseberg, Merkel gave it her quiet backing and the EU commission has proposed a scaled down version -- building a budget of just 55 billion euros.

Germany is open to something modest and included in the overall EU budget, which would require the approval of all the EU's soon to be 27 member states, not just the countries using the single currency.

But the resistance by a group of smaller countries, spearheaded by the Netherlands, has been fierce and just hours ahead of the summit, the eurozone budget was not mentioned explicitly in a draft of summit conclusions seen by AFP.

European Monetary Fund

Eurozone governments will on Friday accept the general idea of upgrading the responsibilities of the European Stability Mechanism (ESM), which oversees bailouts to troubled member states, such as Greece, into some sort of European Monetary Fund.

But beyond the concept, Europeans struggle to agree on the exact missions of this future body and even on its name. Details on the body's new mission have been delayed until December -- and this reform was considered an easier one.

Everyone agrees that it should assume the role of "lender of last resort" (or "backstop") for banks in distress if the backup mechanisms already in place prove ineffective.

But some, including Chancellor Merkel, would like the fund to rival the Commission in its power to oversee national economies. This is opposed by the EU executive, which is loath to cede power to national governments.

Banking Union

Completing the banking union is a central challenge for EU leaders, but the last missing piece is the toughest.

The creation of a European-wide deposit insurance scheme has been bitterly opposed by Berlin for years in the belief that Germany would be on the hook to save fragile banks in countries such as Greece and Italy.

Under the scheme, all EU deposits would be insured up to 100,000 euros through a treasure chest that was guaranteed by taxpayer money.

The repeated delays of EDIS, the acronomy for the European Deposit Insurance Scheme, has become a Brussels inside-joke.

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