Summary; 2nd Discussion Group on the European Monetary Union and Governance

Eurozone Debate
The World

"We want to include you in this decision without you affecting it"

Building on the material of its first meeting held in March the forum on the European Monetary Union and governance held its second discussion group in June.  The meeting focused on two main aspects of governance in the EMU; i) the democratic deficit; ii) fiscal policy. Below you will find a summary of the main points made.

Democratic Deficit 
- There was widespread agreement that the ECB should not lose its independence, as political wrangling over monetary policy would be highly detrimental to the stability of the Eurozone. The point was also noted that this would represent a big step backwards, as a broad trend over the past few decades has been increasing, rather than decreasing central bank independence. 

- Whilst maintaing its independence, though, the ECB could be made more accountable to democratic institutions, such as the European Parliament. The EP must already approve key ECB decisions, such as the appointment of the President, and this relationship could be extended to include, for example, monthly briefings by the ECB President to the EP. 

- An important element of accountability is transparency, and so measures were discussed that could increase the transparency of the ECB. For example, minutes of ECB meetings could be made available to the general public, so that without having any direct say over monetary policy orientations, there would still be the opportunity for EU citizens to gain a deeper understanding of policy decisions. 

- On the topic of accountability, the point was made that it is not only the ECB that would stand to benefit from increased accountability, but EU institutions in general. Some ideas to accomplish this would be greater involvement of national parliaments, extending voting beyond EP elections and increasing access to information about EU-level decisions for the wider public, to name a few. 

- Finally, the general conclusion was reached that the answer to the democratic deficit is ultimately further integration, though the question remains open as to whether there is political will or public support for deeper or wider integration at this point. 

Fiscal Policy
- It was agreed that there is a need to discuss this topic with regard to three different levels: immediate solutions to the crisis; measures to protect against the onset of future crises; long-term considerations. In addition to these three levels, there is a need to consider the political feasibility of any solution. 

- Regarding the first level, the possibility of an orderly default was raised, though this carries with it risks of contagion with regard to Ireland and Portugal most immediately, and potentially other, bigger economies as well.     - The point was also made that it is in the interests of Germany, France and others to bail out Greece, because German, French, etc. banks have exposure to Greek banks and would not be isolated from the effects of a default. However, it is more difficult to explain this to taxpayers and even if taxpayers were made to understand this, there is a point at which bail-out funds provided by Germany, for example, exceed German exposure to Greek debt and what if the crisis were not over at that point?  

- The eventual conclusion reached was that Greece is likely to pass the necessary austerity measures for the next round of EU/IMF funding, and the 'wait-and-see' approach adopted so far will continue until the next political crisis presents itself

- Regarding the second level, three main ideas were discussed. The first was the possibility of institutionalizing a much larger bail-out fund through fiscal transfers from fiscally 'fit' to 'unfit' states, so that money is there to be redistributed in the event of solvency issues. In terms of political feasibility, this solution is questionable at best, given the haggling that tends to ensue over comparatively tiny amounts in the EU budget and the issue of moral hazard if money is to be readily available for states that overspend. 

- The second proposal discussed was that of issuing Eurobonds, guaranteed by the EU rather than individual member states. In this way, countries like Greece and Portugal could more easily raise funds from the bond markets because investors would be accepting an EU, rather than a Greek guarantee, for instance. However, this immediately raises the question of who is backing these EU bonds. There is no central budget to guarantee that these are paid off, and the ECB was never meant to issue system wide debt instruments. 

- A third idea covered was the possibility of a EU finance minister to centralize some of the tasks handled by national ministers in Ecofin and the Eurogroup. A shell of this figure already exists in the form of Jean-Claude Juncker, Eurogroup President, but this proposal would seek to go further. However, one risk here is that you create another position like that of Catherine Ashton, who has not become the effective EU point of contact for foreign policy issues, as was hoped. 

- With regard to the long term, the point was argued that in fact the only real solution to the problems facing the Eurozone is further convergence of member state fiscal policies. For this to take place, there needs to be a great deal of political will amongst leaders to bring their publics onboard, which would require demonstrating the positive aspects of Europe, a trend increasingly lacking in the popular sphere across the EU right now. As a means of increasing citizens' positive identification with Europe, the possibility was raised of increasing cooperation in areas like criminal policy and health care that can, if done right, bring great and noticeable benefits to all Europeans. Setting up common institutions where experts and policy makers could collaborate in such areas would be an excellent way to start working toward these long-term goals. However, we arrive back at the issue of political will, and it is very questionable whether there is any appetite right now for such an undertaking.


As mentioned, we will be holding further events over the coming months, and would be happy to notify those of you interested in attending, once the details are set.  

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