Last week’s contribution focused on the so-called five presidents’ report, which is actually entitled Completing Europe’s Economic and Monetary Union. It is referred to as the five presidents’ report as it was penned by Jean Claude Juncker, the president of the European Commission, with the support of Donald Tusk, president of the European Council, Mario Draghi, president of the European Central Bank, Jeroen Dijsselbloem, president of the Eurogroup, and Martin Schulz, president of the European Parliament.
My conclusion last week was that as a country we need to ensure that there is clarity in the intentions of these five presidents. I used as an example two elements: the issue of fairness and the issue of the autonomy of the elected government of each member state to set fiscal policy within agreed parameters.
Today I would like to pick up the point of what is meant when one speaks of deepening the economic and monetary union. The report speaks of four conditions that need to be met in order to have a genuine EMU.
The first is that each economy has the structural features to prosper within the monetary union. With hindsight, one appreciates that at the time of the introduction of the euro, this analysis was not undertaken. The end result was that countries could not cope with the increasein the value of the euro and experienced a drop in exports. Other countries did not have enough productive capacity to be able to sustain their sovereign debt.
Malta has done relatively well with the adoption of the euro. However, this has happened because of the structure of our economy. We still have a strong manufacturing sector. Our tourism sector has continued to flourish and the services sector continued to diversify and grow. On the other hand, some countries need to go through a transformation process, which may at times be painful if the change is not managed effectively.
I do believe that to have a deeper economic union, each country making up that union must have the appropriate structural features. Moreover, I also believe that the EU needs to devote considerable additional resources to achieve this objective. Furthermore, the EU needs to ensure that none of its actions and decisions serve to weaken the economy of any of its member states, in particular its competitive advantage.
The second condition is that the integrity of the currency needs to be maintained and that the private sector must share in the risks. Again with hindsight, we know that this has not happened since the introduction of the euro. The actions of some states that have adopted the euro have brought about instability in the financial markets.
The EU needs to ensure that none of its actions and decisions serve to weaken the economy of any of its member states, in particular its competitive advantage
The banking sector needs to start sharing in the risks created by a financial union. It is generally agreed that crisis in the financial markets has been brought about by a systemic failure in the banking system. On the other hand, any banking union must take into account the requirements of small states such as ours where the concept of community banks is very relevant.
The third condition is fiscal sustainability and fiscal consolidation. The parameters for fiscal sustainability and fiscal consolidation have been there for many years. However, it would seem that there was always a reason why countries did not abide by them. The end result was the upheaval in sovereign debt and the attack by speculators on the euro during these years. Respect for fiscal rules needs to be strengthened, although this does mean fiscal harmonisation.
The fourth and final condition that needs to be met to have further deepening of the EMU is to have a stronger political union that seeks to be more democratic and more accountable towards the voters. This has also not happened with the introduction of the euro as all too often the technocrats have had it their way, with the result that voters have got detached from the national and EU-wide political structures.
Up to a great extent, the fact that these four conditions have not been met has created serious problems for the euro and explains why it has not been possible to deepen the economic and monetary union. Therefore one is likely to agree with the analysis presented in the five presidents’ report. It is the conclusion that in my opinion gives rise for concern.
On the subject of deepening the EMU, the report concludes: “For the euro area to gradually evolve towards a genuine economic and monetary union, it will need to shift from a system of rules and guidelines for national economic policymaking to a system of further sovereignty sharing within common institutions, most of which already exist and can progressively fulfil this task.
In practice, this would require member states to accept increasingly joint decision-making on elements of their respective national budgets and economic policies.”
Invariably, the joint decision-making within the EU has meant the interference by faceless unelected bureaucrats. Any further sovereignty sharing as proposed by the report is undemocratic in nature and requires transparency and openness. National governments cannot be expected to succumb to the pressures of lobbies in Brussels or lobbies in the larger and more powerful states.
So I do believe that the subject of further deepening of the economic and monetary union be explored further, but, a priori, this cannot be achieved by governments giving up on any of the autonomy they currently enjoy in economic decision-making.