A stronger Eurozone for a better Union
Emmanuel Macron, Minister of the Economy, Industry and the Digital Sector, and Sigmar Gabriel, Vice-Chancellor of Germany and Minister for Economic Affairs and Energy
From one border of the European Union – Greece – to the other – the United Kingdom – the European ideal is being challenged. It is no surprise, since the terrible crisis of the recent years has unveiled two key weaknesses of the European architecture. The first one is the end of economic convergence between EU – and in particular Eurozone – countries. This is not a theoretical matter: unemployment is the daily reality of millions, especially our youth which is being sacrificed. The second weakness is about political tensions: within the member States, where anti-European forces are on the rise; and within the Union itself. The Greek and British cases, for all their differences, show that European general interest and national interests are more and more seen as drifting apart from each other.
In this context, and ten years after the French “no” to the constitutional referendum, now is the time to reopen the economic and political debate, and to fix the Eurozone as part of a greater deal for a Union in which all member states find their place. In the coming days, we do hope that a solution will be found to address the urgent difficulties regarding Greece. But we also need to think further and to make proposals for the future of Europe.
A new integration path for the Eurozone
The euro was built on a Franco-German understanding but also on a typically European constructively ambiguous compromise. This gives France and Germany a particular responsibility to straighten what is crooked. We shared in the late 1980s a common political project that was grounded in different economic ideals. Germany was marching towards unification and wanted to replace the defunct European monetary system by a harder fixed exchange rate regime built on the culture of the Bundesbank. France wanted to firmly embed Germany in Europe and improve Europe’s chances to harness globalisation. These projects served the broader purpose of European integration, but they allowed overlooking critical flaws in the architecture of the monetary union. These need to be decisively addressed so that the euro fulfills its promise of economic prosperity and prevents Europe from slipping even more into division and discontent.
In order to do so, we have to launch an economic and social union by agreeing on a new staged process of convergence that would involve structural reforms (labour, business environment), institutional reforms (functioning of the economic governance) but also social and tax convergence where necessary (consistent, though not necessarily equal, minimum wages, and a harmonised corporate tax). This would strengthen our individual economies, establish a real level playing field across the euro area and ensure that tax competition and social dumping don’t create races to the bottom and uncooperative fiscal devaluations. It would bring our economies closer, improve the economic potential of EMU and allow establishing clearly which policies should be centralised, harmonised or simply coordinated.
This convergence process between Member States would allow the creation of the embryo of a euro area budget, a feature of any functioning monetary union. Indeed, the current rules-based fiscal framework, while flexible and important to ensure fiscal discipline, doesn’t guarantee that the sum of national fiscal policies will lead to an adequate fiscal stance for the euro area as a whole, either in good or in bad times. This demands a fiscal capacity over and above national budgets that would improve the ability to provide automatic stabilisation and allow the European level to expand or tighten fiscal policy in line with the economic cycle. This fiscal capacity could be first developed in the context of the Juncker plan with a view to finance European investment projects (interconnections, smart grids, venture capital etc.). It could later be extended into a proper euro area budget built around, first, an allocative arm focused on specific investment responsibilities and, second, a stabilisation arm built around automatic stabilizers. This budget would have its own revenues (e.g. a common Financial Transaction Tax, as well as a small portion of a harmonised corporate tax) and an ability to borrow on that basis.
A Euro area-level budget should not and need not come at the expense of fiscal discipline at the national level. On the contrary: this should be strengthened by establishing a legal framework for orderly and legitimate sovereign debt restructurings, should they become necessary as a last resort. This would prevent both inappropriate use of crisis lending and self-defeating bouts of austerity when countries face unsustainable debts. At the same time, the European Stability Mechanism (ESM) should be brought under community law and transformed into a proper European Monetary Fund.
These changes would create a Eurozone architecture that increasingly relies on common institutions. This need not occur at the expense of the Euro area’s ability to accommodate different national situations and circumstances. To make its institutions work, however, Europe will need to address its democratic deficit as well as its executive one. This means that new executive powers at the Euro area level need to be complemented by governance reforms leading to stronger accountability – for example, to a Euro area formation within the European Parliament. A “Euro Commissioner” could embody this stronger Eurozone focusing on fiscal policy but also on growth, investment and job creation.
A greater ambition for the EU as a whole
Strengthening the euro is not only about the Eurozone itself. It cannot be isolated from a broader rethinking of the EU, not least because we need to be able to answer the key question: “what about the other member states?”. A stronger Eurozone should be the core of a deepened EU. We need a simpler and more efficient Union, with more subsidiarity and a streamlined governance. The fundamental instrument of EU integration is the single market: we should therefore make a new step towards a better integrated internal market, with a targeted approach on key sectors like energy and digital economy.
A better functioning Europe also requires a stronger sense of community. Institutional legitimacy arises from closer links between citizens. Hence, we need to strengthen our affectio societatis. This is the reason why we support, for instance, a generalised Erasmus programme which would allow every European reaching the age of 18 to spend at least one semester in another EU country to either study or follow an apprenticeship.
Building this new architecture is fundamental not only to deliver good policy in the short term but also to ensure the political and economic stability of the euro and the Union over the long run. We have to find and implement the means by which European general interest will stop to appear different from national ones. Our common goal shall be to render unthinkable for any country rightfully in pursuit of its national interest to consider a future without Europe – or within a lesser Union. We can achieve this goal through a Union of solidarity and differentiation. France and Germany have the responsibility to lead the way, because Europe cannot wait any longer.