Abstract
This chapter analyses the main proposals of reform of the economic union: finalisation of the banking union, creation of a capital market union, transformation of the European Stability Mechanism, establishment of an additional budgetary capacity for the euro area, creation of a debt restructuration mechanism and setup of a European Minister of Economy and Finance. After having described the main features of these proposals, the chapter will study the most relevant legal challenges, the process of completion of the economic union will present coming from both the process of fiscal centralisation and the restoration of the decentralised model of economic union.
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Notes
- 1.
Bénassy-Quéré et al. (2018), pp. 2–3.
- 2.
On the limited ability to absorb large macroeconomic shocks in the euro area cf. European Commission Staff Working Document (2018), pp. 6–13.
- 3.
The final version of the document was released on 5 December 2012. President of the European Council, Final Report (2012).
- 4.
European Commission Communication (2012).
- 5.
President of the European Commission, Report (2015).
- 6.
High-Level Group on Own Resources (2016).
- 7.
European Parliament Resolution (2017).
- 8.
- 9.
President of the French Republic, ‘Initiative pour l'Europe - Discours d'Emmanuel Macron pour une Europe souveraine, unie, démocratique’, (2017).
- 10.
European Commission Proposal for a Regulation (2017).
- 11.
European Commission Communication (2017b).
- 12.
European Commission Proposal for a Directive (2017).
- 13.
European Commission Communication (2017c).
- 14.
President of the French Republic, Chancellor of the German Federal Republic ‘Meseberg Declaration’, (2018).
- 15.
Hinarejos (2013), pp. 1634–1636.
- 16.
Hinarejos (2013), pp. 1634–1635.
- 17.
According to this vision, the no bailout clause has not been effective because of the weaknesses of the financial sector and its excessive exposure to sovereign debt. See Fuest and Peichl (2012), p. 9.
- 18.
Ibid. pp. 9–10.
- 19.
- 20.
Countries like Italy are indeed ‘too big to save’. Buchheit and Gulati (2018), p. 66.
- 21.
- 22.
In particular see supra Sect. 3.4.3.
- 23.
- 24.
- 25.
- 26.
- 27.
The creation of a court for sovereign default , regardless the mandate and tasks it would be provided with, may have jurisdiction only on the bonds issued under the governing law of a euro area countries. Zettelmeyer (2018), p. 73.
- 28.
- 29.
At the same time the possibility for a debt restructuration within the ESM financial assistance would allow for an immunity from judicial claims only in the euro area. Zettelmeyer (2018), p. 73.
- 30.
- 31.
- 32.
- 33.
- 34.
Schäuble (2017).
- 35.
Eurogroup (2018a). See Whereas (11) Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019.
- 36.
Whereas (12A) Ibid.
- 37.
Whereas (12B) Ibid.
- 38.
In the event of a debt restricting the ESM should facilitate the dialogue between the country and private investors.
- 39.
Buchheit and Gulati (2018), p. 67. This is what happened in the case of the Greek debt restructuration in March 2012. On the legitimacy of the parliamentary decision to impose a class voting mechanism on all bond holders see Mamatas and Others v Hellenic Republic, Greece App. No. 63066/1464297/14 66106/14 (ECHR, 21 July 2016).
- 40.
Hinarejos (2013), pp. 1634–1635.
- 41.
This is part of the vision of the former German Minister of Finance, Wolfgang Schäuble, on the reform of the ESM. The new ESM (recalled European Monetary Fund) should be able to exercise a wide control on public finances and gradually replace the Commission in the application of the SGP . See Schäuble (2017). According to the proposal of Schäuble, the new ESM should remain an intergovernmental body: the decisions would be taken by the stronger Member States, making it difficult to pursue the interest of the euro are as a whole. See Wolff (2017), pp. 2–3.
- 42.
Commission Decision (EU) 2015/1937 of 21 October 2015 establishing an independent advisory European Fiscal Board. See supra Sect. 3.5.2.
- 43.
This was for example the proposal put forward by the former German Minister of Finance, Wolfang Schäuble. See. Reuters (2014).
- 44.
European Commission Green Paper (2015), p. 2.
- 45.
Sapir et al. (2018), p. 2.
- 46.
In 2015, 80% of European financial assets consisted of bank credit, while in the US only 20%. See Quaglia et al. (2016), p. 186.
- 47.
Quaglia et al. (2016), p. 197.
- 48.
European Commission Communication (2015). The action plan covers six areas: (1) financing for innovation, start-ups and non-listed companies; (2) entering and raising capital on public markets; (3) facilitating long-term investment; (4) fostering retail and institutional investment; (5) facilitating securitisation; and (6) facilitating cross-border investment.
- 49.
Regulation (EU) No 2402/2017 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012, (2017) OJ L 347/35; Regulation (EU) No 2017/1991 of the European Parliament and of the Council of 25 October 2017 amending Regulation (EU) No 345/2013 on European venture capital funds and Regulation (EU) No 346/2013 on European social entrepreneurship funds, (2017) OJ L 293/1.
- 50.
Council (2019).
- 51.
For a survey of the legislation proposed and adopted see Sapir et al. (2018), pp. 4–5.
- 52.
Sapir et al. (2018), pp. 7–8.
- 53.
Ibid. p. 9.
- 54.
Ibid.
- 55.
- 56.
According to the Action Plan, the CMU should have been completed by the end of 2019. In order to accelerate the completion of the project, the 16 May 2019 the French, German and Dutch Finance Ministers proposed to create a high-level working group on the Capital Markets Union (CMU) , in a letter signed in the margins of the Eurogroup .
- 57.
- 58.
The concept of fiscal federalism was invented in the United States to analyse the fiscal relationship between the federal level and the Member States. Today, it is used to define the fiscal relationship within a state between the different levels of government. The public finances of each level can potentially take care of three functions: efficient allocation of resources, income distribution and macroeconomic stabilisation. Fiscal federalism analyses what function should be better exercised at different level. Cf. Carboni (2014), pp. 4–5.
- 59.
See supra Sect. 3.8.
- 60.
Since 2014, banks in the euro area have been subject to a comprehensive asset quality review, stress test and recapitalisation. See European Commission Communication (2017a), p. 4.
- 61.
See supra Sect. 4.3.7.
- 62.
See European Commission Communication (2017a), p. 6.
- 63.
The diversification of banks’ sovereign portfolios should reduce risks to financial stability . Ibid. p. 18.
- 64.
The problem is that the actions of the SRB would not be credible if there wasn’t a sufficient guarantee that all Member States are actually willing to stabilise the euro area banking system.
- 65.
This situation may happen when the SRF is depleted and the SRB is not able to raise sufficient ex-post contributions or borrow funds from other sources at acceptable rates.
- 66.
Explanatory Memorandum to the European Commission Proposal for a Regulation (2017), p. 6.
- 67.
European Commission Communication (2017a), p. 14.
- 68.
- 69.
See Art. 18A(1) Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019.
- 70.
The size of the credit line will be aligned with the SRF funds.
- 71.
As a rule, disbursement should be approved maximum 12 h as from the SRB’s request. In exceptional cases, especially in the case of a particularly complex resolution operation, the ESM Managing Director might agree to lengthen the deadline up to 24 h. See Eurogroup (2018b); Whereas (15B) Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019.
- 72.
Some Member State may indeed require an authorisation from the national parliaments in order to vote in favour of the activation of the ESM.
- 73.
The request shall be accompanied by a proposal from the Managing Director and an assessment of the SRB’s repayment capacity and, where relevant, the assessments by the European Commission and the ECB .
- 74.
These are high-level officials from the finance ministries of the Member States of the euro area.
- 75.
See art. 18A(5) and (6) Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019. After two instances of the use of the emergency voting procedure, it application shall be suspended until the Board of Governors decides to cancel such suspension.
- 76.
Eurogroup (2018b). In this regard, it is important the adoption of Regulation (EU) 2019/630 amending Regulation (EU) No 575/2013 as regards minimum loss coverage for non-performing exposures, (2019) OJ L 111/4.
- 77.
Eurogroup (2018b). The risks for the stability of the euro area as a whole posed by a banking crisis of systemic relevance will be neutralised by the SRF with the support of the ESM, rather than by the ESM directly.
- 78.
Moloney (2014), p. 1628.
- 79.
Whereas (9A) Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019.
- 80.
Looking at the US experience the total losses of deposits during the crisis in 2008–2009 was 0.5% of the American GDP. A fund of €90 billions would amount to almost 1% of the GDP in the euro area. See Gros and Schoenmaker (2014), p. 542.
- 81.
Eurogroup (2018b).
- 82.
European Commission Proposal for a Regulation (2015).
- 83.
Considering the size of the deposit insurance, Gros and Shoenmaker, suggest it should consist of 1.5% of covered deposit over a period of 10 years. A total of 1.5% of €5980 billions would amount to around €90 billions. Then it should be added 0.5% of cover deposits that the fund could call up ex post. See Gros and Schoenmaker (2014), pp. 540–541.
- 84.
This will be possible only if there is also a reduction of risks. In this sense, measures shall be taken to reduce the non-performing loans owned by the banks of several Member States. See European Commission Communication (2017a), pp. 15–16. Aside from these major reforms, the European Commission proposed other important measures to reduces risks in the banking sector, for example requiring banks to build up buffers of liabilities that can, if necessary, be bailed in, introducing a common approach to the bank creditor hierarchy in a way to enhance legal certainty in case of resolution, as well as harmonising the insolvency law in order to support efforts to reduce NPLs. European Commission Communication (2017a), p. 15.
- 85.
European Commission Proposal for a Regulation (2017).
- 86.
- 87.
Amendments should be adopted by December 2019.
- 88.
Cf. supra Sect. 5.3.3.1.
- 89.
Cf. supra Sect. 3.6.2 note 76. See art. 14(1) of the Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14th June 2019.
- 90.
Eurogroup (2018c); ‘Eligibility criteria for ESM precautionary financial assistance ’ Annex III of the Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019. The eligibility criteria include a track record of 2 years preceding the request for a PCCL with a general government deficit not exceeding 3% of GDP, a general government structural budget balance at or above the country specific minimum benchmark, a debt/GDP ratio below 60% or a reduction in the differential with respect to 60% over the previous two years at an average rate of 1/20 per year.
- 91.
See art. 14 (2) Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019.
- 92.
The Managing Director of the ESM and Commission in cooperation with the ECB will be responsible for the report ex art. 13(7) TESM 2019. See art. 14(6) ibid.
- 93.
See art. 14(7) ibid.
- 94.
‘As regards the financing terms of precautionary instruments, the margin will be set at 35 bp In case of an extension of maturities, a step-up margin of 50 bp will be applied. Once the credit line is drawn, in case of non-compliance with the Letter of Intent for the PCCL or with the MoU for the ECCL, which is not due to events outside the control of the government as assessed by the ESM BoD, an additional margin of 50 bps will be applied, which increases by 65 bp after six months, and access to the funds would be discontinued’. Eurogroup (2018c).
- 95.
It might by surprising that the ESM was missing an efficient mechanism to provide precautionary assistance. This can be explained for two reasons. Whereas (4) TESM envisages that the main precaution for stability in the euro area should be the compliance with economic coordination rules. Furthermore, the ESM was set up in a situation of extreme emergency, when it was too late to use precautionary instruments. It should be noted that art. 13(6) TESM provides for the establishment of an appropriate warning system to ensure that the ESM receives any repayments due by a Member State under the stability support in a timely manner. Cf. Forsthoff (2018), p. 114.
- 96.
This is a risk identified also by the Eurogroup . Whereas (15A) of Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019 states that: ‘the ESM should not serve the purpose of economic policies coordination among ESM Members for which European Union law provide the necessary arrangements’.
- 97.
As it was already explained the Board of Directors can dismiss the report issued by the Commission and the Managing Director on the compliance with the eligibility criteria. See art. 14(6) Draft revised text of the treaty establishing the European Stability Mechanism as agreed by the Eurogroup on 14 June 2019.
- 98.
Eurorogrup (2018c). These agreements are: Memorandum of Understanding on the working relations between the European Commission and the European Stability Mechanism, 27 April 2018; Joint Position on the ‘Future cooperation between the European Commission and the European Stability Mechanism’, 14 November 2018.
- 99.
Forsthoff (2018), p. 115.
- 100.
Ibid. p. 115.
- 101.
‘Greece needs debt restructuring, interest rate cuts: IMF's Lagarde’. Reuters, 22 February 2017.
- 102.
Forsthoff (2018), p. 115.
- 103.
The ESM should be incorporated in EU law and assume wide autonomy on the model of the EIB. Pilz (2017), p. 642.
- 104.
See infra note 133.
- 105.
On 6 March 1970, the Council of Ministers appointed Pierre Werner, Prime Minister of Luxembourg, as the chair of the Committee in charge of developing a project of Economic and Monetary Union . The final report was presented to the Commission on 8 October 1970.
- 106.
Commission of the European Communities (1977).
- 107.
For a general analysis of the EU budget cf. Santini (2015).
- 108.
The latter instruments did not cause an impact on the EU budget as they finance themselves on the markets and they are only backed by the EU budget.
- 109.
On the reasons, why the euro area should be provided with a stabilisation function: Cottarelli (2016), pp. 5–6; Thirion (2017), pp. 10–11; Arnold et al. (2018), pp. 7–9. In favour of a stabilization instrument for the euro area also: Pisani-Ferry et al. (2013), Delbecque (2013), Lellouch and Sode (2014), Beblavý and Maselli (2015), Dullien et al. (2017), Carnot et al. (2017), Bénassy-Quéré et al. (2018), pp. 14–16, Adamski (2018), pp. 153–155.
- 110.
- 111.
- 112.
See ‘President of the French Republic, Chancellor of the German Federal Republic ‘Meseberg Declaration’, (2018).
- 113.
Euro Summit (2018).
- 114.
- 115.
European Commission Staff Working Document (2018), p. 25.
- 116.
Several proposals alluded to the fact that the budgetary mechanism would entail a certain degree of transfers, even if the latter should not be permanent or unidirectional. Cf. President of the European Commission, Report (2015), p. 15; Explanatory Statement of the European Parliament Resolution (2017), p. 15; European Commission Staff Working Document (2018), pp. 24–25.
- 117.
It should be noted that not all proposals agree on this feature. Some for example suggest, the budgetary instrument may provide loans to the Member States, and only the cost of the interest rate on the latter should be covered by a grant. European Commission Communication (2018), p. 11. On the concession of favorable loans cf. European Commission Staff Working Document (2018), pp. 28–31.
- 118.
Marzinotto et al. (2011), p. 7; Allard et al. (2013), p. 19; Vallée (2014), pp. 59–60; De Grauwe (2016), pp. 217–218; Bénassy-Quéré et al. (2016), p. 14. Explanatory Statement of the European Parliament Resolution (2017), p. 22. The Commission argued that in order be effective in the euro area, the stabilization function for overall net payments should count on at least 1% of GDP. Cf. European Commission Communication (2017b), p. 14.
- 119.
According to the Commission, the stabilisation function shall be neutral over the medium-term and not lead to permanent transfers between Member States. European Commission Communication (2017b), p. 14.
- 120.
Ibid., pp. 14–15.
- 121.
Ibid. The Monti Report identifies some other principles which should regulate a separate budget for the euro area: unity (as the euro area budget should show in a single document all revenue and all expenditure); universality or non-assignment (all revenue should finance all expenditure and not be specifically assigned); accuracy (the euro area must not spend more than necessary); specification (the euro area budget needs to be detailed so that there is no ambiguity of purpose for all appropriations); annuality; equilibrium (this principle should be problematic if the euro area budget had a borrowing capacity). See High-Level Group on Own Resources (2016), p. 69.
- 122.
High-Level Group on Own Resources (2016), p. 22.
- 123.
- 124.
According to the Monti Report some of the envisaged ‘new own resources ’ may be more adapt due to their connection to the existence of the single currency. This would be the case of revenue from seigniorage (approximately €4–5 billions per year) or the financial transaction tax (estimated at €10–15 billions per year). In order to collect more resources, the Report suggest considering revenue from a share of national indirect or direct taxation, as well as cash contributions.
- 125.
On a deeper economic analysis of the different proposals see Brunnermeier et al. (2016a), pp. 111–114.
- 126.
European Commission Green Paper (2011).
- 127.
‘Relying only on a system of loans could have a limited impact, since the Member State could simply borrow in the markets or access one of the existing precautionary credit lines. On the other hand, a loan component has the merit of addressing some possible liquidity concerns without creating risks of permanent transfers. A stabilisation instrument via a system of grants could have stronger and more immediate macroeconomic effects’. European Commission Communication (2017b), p. 14.
- 128.
Cf. European Commission Communication (2012), pp. 32–33; European Commission Communication (2017b), p. 14; Explanatory Statement of the European Parliament Resolution (2017), pp. 20–22. On the pros and contra of the microeconomic and macroeconomic approaches see Berger et al. (2018), pp. 32–33.
- 129.
See Adamski (2018), pp. 159–161.
- 130.
Ibid. pp. 161–165.
- 131.
- 132.
European Commission Communication (2017b).
- 133.
European Commission Communication (2018), pp. 10–11; European Commission Proposal for a Regulation (2018a) on the establishment of the Reform Support Programme; European Commission Proposal for a Regulation (2018b). The Reform Support Programme should be an instrument meant to encourage the implementation of structural reforms in the Union with the purpose of improving the convergence and the resilience of national economies. It should be composed of three elements: a reform delivery tool in charge of providing financial incentives for the implementation of reforms in Member States; a technical support instrument to help Member States in their effort to design and implement reforms; a convergence facility for the countries which are preparing their membership for the euro area. The resources identified by the European Commission for the kick-off of the project are €25 billion. The European Investment Stabilisation Function (EISF) should be a mechanism in charge of absorbing economic shocks that Member States are unable to manage on their own by stabilising investment levels. EISF should have fulfilled a stabilisation function through the provision of ‘back-to-back loans under the EU budget of up to €30 billion, coupled with a grant component to cover the costs of the interest’. In order to collect more resources, the Commission proposed that the stabilisation function may be complemented by additional financing resources outside the EU budget, such as precautionary loans by the ESM, and a possible voluntary insurance mechanism to be set up by the Member States. The intervention of the mechanism should be conditional to the respect of both eligibility criteria based on the compliance of Member States with fiscal rules under the SGP , and activation criteria proving the existence of a relevant economic shock.
- 134.
Meseberg Declaration (2018); Proposal on the architecture of a Eurozone Budget within the framework of the European Union, 16 November 2018. According to the Franco-German proposal, the separate budget for the euro area was supposed to be part of the EU budget, even if it would operate under the strategic guidance of the Euro summit . The Eurozone budget should have been primarily financed by external assigned revenues, including the allocation of tax revenues and European resources. The latter revenues would consist of regular contributions by Eurozone Member States, collected and transferred to the EU budget on the basis of an intergovernmental agreement. The aim of the Eurozone budget was to strengthen competitiveness and convergence, which would have been delivered through investments in innovation and human capital, thus pursuing the objective of the stability of the euro area as a whole . Finally, the proposal also mentioned that the Eurozone budget might finance a stabilisation tool in the form of a European Unemployment Stabilization Fund, in the case of severe economic crises, without transfers.
- 135.
For a comparison of the two proposals see Santini and Lionello (2018).
- 136.
Having linked their currency to the Euro, the ERM II countries, however, may also join on a voluntary basis. The Eurogroup will take into account the participating ERM II Member States in the management of the instrument.
- 137.
It is not clear what legal basis will be chosen for the creation of the instrument. Both the Commission proposals and the Franco-German agreement identified a number of legal provisions, such art. 136 TFEU on the enhanced economic coordination within the euro area, art. 175(3) TFEU on specific actions outside the structural fund, art. 173 TFEU on the competitiveness of the industry and art. 182 TFEU on research and technological development. In July 2019 the European Commission proposed a regulation establishing a governance framework to enable the Council to provide strategic orientations on reform and investment priorities to be undertaken within the euro area by the Member States. The regulation should be adopted on the basis of art. 136(1) (b) and art. 121 (6) TFEU. See European Commission Proposal for a Regulation (2019).
- 138.
The future size of BICC is the main source of disagreement between the Member States. While France, supported by countries like Spain , imagined a mechanism able to mobilise significant resources, the Netherlands and other northers countries, including Germany, insist that the instrument shall maintain a modest size.
- 139.
These priorities shall also be set out in the European Semester .
- 140.
Structural reforms and public investment projects should reflect the strategic guidance on the use of the instrument provided by euro area Member States, through the Euro Summit and the Eurogroup , and set out in the European Semester . Eurogroup (2019).
- 141.
More precisely, ‘the proposals shall include the estimation of the costs of investments and, where appropriate, of structural reforms, the justifications for the estimated costs, as well as the timeline for implementation of the structural reforms and investments, with the relevant milestones and targets’. Ibid.
- 142.
‘The national co-financing rate could vary based on a predictable and transparent commonly agreed procedure defined ex-ante involving euro area Member States’. At the same time, ‘the allocation of funds per country will be determined on the basis of a transparent methodology, taking into account parameters reflecting the overarching aim of the instrument and legal basis. The available funds per country should be within an acceptable range of the contributions of that country’. Ibid.
- 143.
Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006, (2013) OJ L 347/320.
- 144.
Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012(1), (2018) OJ L 193/1.
- 145.
‘The Commission will be responsible for budgetary implementation and the European Parliament for giving the discharge, after the Council has given its recommendation. Implementation will be subject to the scrutiny of the European Court of Auditors.’ Eurogroup (2019).
- 146.
Ibid.
- 147.
Allemand (2017), p. 92.
- 148.
European Commission Communication (2017c).
- 149.
The transfer of competence to the EU level would require a treaty change. Pilz (2017), p. 642.
- 150.
European Commission Communication (2017c), pp. 3–5.
- 151.
From the practical point of view, it may be problematic as the role of President of the Eurogroup should be a full-time position and avoid accumulation of roles (i.e. national minister of finance or member of the Commission). Cf. Wolff (2017), p. 4. Furthermore, art. 16(9) TEU may prevent a Commissioner from becoming President of the Ecofin Council. Cf. Pilz (2017), p. 641.
- 152.
In order to make sense, a Minister of Finance should have several responsibilities including oversee the coordination of fiscal and economic policies; oversee and politically defend the enforcement of the rules; lead negotiation in the framework of the ESM about the adjustment programme; help buffer regional shocks by using a small EU budget for investments; represent the euro area externally. The implementation of these important tasks requires that the Minister may count on some fiscal instruments: a European investment budget in charge of counterbalancing asymmetric shocks and supporting reforms, as well as a European Monetary Fund to intervene in the event of systemic crisis. See Enderlein and Haas (2015), pp. 4–6.
- 153.
- 154.
The new name may create confusion with the tasks conferred to the ECB .
- 155.
According to the proposal, the most important decisions (i.e. capital calls; modify minimum lending capacity, change in capital distribution) are taken by unanimity. Decisions on the activation of the EMF (i.e. provision of stability support, adoption of conditionality policy as stated in the MoU ) are taken by a reinforced qualified majority (85% of the votes cast). Decision on the statutory roles and the internal functioning are instead taken by qualified majority (80% of the votes cast). The qualified majority gives a veto power only to bigger States (Germany, France and partially Italy ). It is important that also the EMF Regulation foresees that if any Member fails to pay any part of the amount due in respect of its obligations in relation to paid-in shares or calls of capital its voting rights shall be suspended for so long as such failure continues. See art. 4(8) of Annex to the European Commission Proposal for a Regulation (2017) (Statute of the EMF).
- 156.
In the Meroni case, the Court recalled the principle of institutional balance to introduce a general ban on the delegation of discretionary powers to EU agencies. According with this case law, powers can be conferred to agencies only if they are clearly defined and have an executive nature. See Judgment of the Court of 13 June 1958, Case C-9/56 Meroni & Co., Industrie Metallurgiche, SpA v High Authority of the European Coal and Steel Community, ECLI:EU:C:1958:7.
- 157.
See Whereas (34) European Commission Proposal for a Regulation (2017).
- 158.
Editorial Comment (2018), p. 712.
- 159.
According to the proposal, the EFM has the obligation to submit annual report and the European Parliament, the Council, the Commission and the national parliaments on the execution of its tasks. The European and national parliaments may pose oral and written questions and clarification to the EMF in the person of the Managing Director, by taking in due account the confidentiality need. See art. 5 and art. 6 of European Commission Proposal for a Regulation (2017).
- 160.
See Regulation (EC) No 1049/2001 of the European Parliament and of the Council of 30 May 2001 regarding public access to European Parliament, Council and Commission documents, (2001) OJ L 145/43.
- 161.
European Commission Proposal for a Directive (2017).
- 162.
Art. 16 TSCG prescribes the incorporation of the Fiscal Compact in EU law within 5 years since its entry into force.
- 163.
The preference for fiscal rules of ‘constitutional nature’ is not mentioned in the text of the Directive, but only in Whereas (13). This might represent de facto a downgrading of the duty of constitutionalization of numerical fiscal rules introduced by the TSCG.
- 164.
- 165.
See Whereas (15), Whereas (16), Whereas (17) European Commission Proposal for a Directive (2017).
- 166.
On the balance between centralisation and decentralisation see Van den Bergh (2016).
- 167.
Cf. supra Sect. 4.3.2.
- 168.
See supra Sect. 4.2.3.
- 169.
See supra Sect. 4.2.8.
- 170.
Hinarejos (2013), pp. 1639–1640.
- 171.
See German Federal Constitutional Court , Judgment of 30 June 2009, [2 BvE 2/08] paras 252, 256.
- 172.
Cf. Beck (2014), p. 553.
- 173.
See supra Sect. 4.4.5.
- 174.
See supra Sect. 4.3.5.2.
- 175.
- 176.
According to Gelpern there are other possible risks coming from the introduction of a debt restructuration regime: sovereign debt is mostly not enforceable and not dischargeable; sovereign debtor has different creditor groups: official and private, domestic and foreign, bilateral and multilateral. Gelpern (2014b), pp. 273–277.
- 177.
Barbieri Hermitte (2017), p. 114.
- 178.
Ibid. p. 116.
- 179.
Ibid. p. 116.
- 180.
Zettelmeyer (2018), pp. 72–73.
- 181.
Fuest et al. (2016), p. 303.
- 182.
‘European Safe Bonds’ (ESBies) were proposed by Brunnermeier. The aim of this project is to replace the sovereign bonds of Eurozone governments that are currently in use as safe assets with new Eurozone safe assets. On the technical feature of the proposal See Brunnermeier et al. (2016b).
- 183.
Panizza (2013), p. 6.
- 184.
Zettelmeyer (2018), pp. 75–76.
- 185.
For this reason, the restructuration of Greek debt in March 2012 was presented an as ‘unique and exceptional’ event. Wyplosz (2014), p. 2.
- 186.
On the impact of MoUs on domestic policies cf. Ioannidis (2016), p. 1266.
- 187.
On the inability of national politics to consider and incorporate existing European interdependence cf. Maduro (2012), pp. 5–6.
- 188.
A stronger role of national parliament in the governance makes sense in a surveillance model, while in the case of a stronger fiscal integration, democratic accountability should be ensured at European level. Hinarejos (2015), p. 164.
- 189.
- 190.
During the sovereign debt crisis, for example, both the German parliament and the Greek parliament demanded to be the ‘sole responsible’ for the management of the crisis. Ioannidis (2016), p. 1278. Democratic constituencies during the crisis proved being ‘parochial’, Ibid. p. 1279.
- 191.
Weber considers it as a budgetary union provided with wide powers of intervention, which de facto reduce the importance of national budgets; the latter would be, at least partially, replaced by a common budget. Weber (2013), p. 376. De Streel identified different options to centralise fiscal policies at European level: a budget set up between the Member States with insurance characteristics and stabilisation functions, a common employment benefit scheme for the labour market or the common issuance of sovereign bonds. De Streel (2014), p. 103. Fuest and Peichl noticed that different forms of fiscal union are possible depending on the level of integration desired by the participating Member States. Accordingly, a fiscal union may consist of coordination and supervision on national budgetary polices (Maastricht model), the setup of a crisis resolution mechanism to avoid sovereign default (ESM model) or organise an orderly debt restructuration , the creation of joint guarantees for government debt, the setup of a transfer mechanism between countries or even the establishment of a larger budget and common taxes. Fuest and Peichl (2012), pp. 2–7.
- 192.
Hinarejos (2012), pp. 259–260.
- 193.
Art. 113 TFEU applies only to the harmonisation of indirect taxation. The provision has been used for the adoption of several directives on the collection of VAT and excise duties. Cf. Council Directive 92/84/EEC of 19 October 1992 on the approximation of the rates of excise duty on alcohol and alcoholic beverages (1992) OJ L 316/29; Council Directive 2003/96/EC of 27 October 2003 restructuring the Community framework for the taxation of energy products and electricity, (2003) OJ L 283/51; Council Directive 2008/118/EC of 16 December 2008 concerning the general arrangements for excise duty and repealing Directive 92/12/EEC, (2008) OJ L 9/12. According to Fabbrini, art. 113 TFEU may provide a sufficient legal basis for the setup of a taxing power together with art. 311 TFEU on the ‘own resources ’. See Fabbrini (2016), pp. 166–167.
- 194.
See Tosato (2016), p. 236. The use of the flexibility clause is doubtful as it may be used for ad hoc measures, not the transfer of fiscal sovereignty to the Member States. See Hinarejos (2012), p. 261. The German Constitutional Court expressly said that the flexibility clause cannot be interpreted as an unrestricted competence to extend competences and that art. 311 TFEU does not go beyond the current provision on the procurement of own resources . German Federal Constitutional Court , Judgment, 30 June 2009, [2 BvE 2/08], para. 142.
- 195.
- 196.
High-Level Group on Own Resources (2016), p. 22. For this reason, the own resources are similar to the fiscal revenues Member States allocate to decentralized regions or smaller geographical entities so that they can take care of certain functions. Ibid. p. 20.
- 197.
Ibid. p. 22.
- 198.
Ibid. p. 23.
- 199.
A common corporate tax base could be introduced on the basis of the test for the correct use of art. 113 TFEU defined by the ECJ in the Tobacco Advertising case. Judgment of the ECJ of 5 October 2000, Case C-376/98 Germany v EP and Council (Tobacco Advertising), ECLI:EU:C:2000:544. See Hinarejos (2012), p. 261.
- 200.
For example, in the Halifax and Cardbury Schweppes the ECJ said that a company can’t move to a Member State to another for tax reasons if the economic activity is not also moving (fictitious transfer). See Judgment of the Court of 21 February 2006, Case C-255/02, Halifax plc, Leeds Permanent Development Services Ltd and County Wide Property Investments Ltd v Commissioners of Customs & Excise, ECLI:EU:C:2006:121; Judgment of the Court of 12th September 2006, Case C-196/04, Cadbury Schweppes plc and Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, ECLI:EU:C:2006:544. For a wider analysis of the relevant case law on the matter cf. Rossolillo (2018), pp. 127–138.
- 201.
Bizioli and Sacchetto (2016), p. 18.
- 202.
In the Commission proposal, the stabilisation function shall be granted in three complementary ways: (i) the ESM/EMF could play a role of back-office to the stabilisation function by providing precautionary loans to deliver short-term liquidity support; (ii) the EU budget could provide some limited annually budget grant support to the Member States concerned. This would be a limited budget line as part of ESIF; this budgetary line would feed every year into the stabilization function to help build up its capital; (iii) an insurance mechanism based on voluntary Member States’ contributions could complement the grant support of the stabilisation function over time. Cf. European Commission Communication (2017b).
- 203.
See supra Sect. 5.3.3.4.3.
- 204.
Other useful legal basis may be art. 173 TFEU on the competitiveness of the industry and art. 182 TFEU on research and technological development and art. 175(3) TFEU on specific actions outside the structural funds.. For the possible use of art. 175(3) TFEU cf. European Commission Staff Working Document (2018), p. 23.
- 205.
Cafaro (2017), p. 79.
- 206.
Considering the possible setup of a euro area budget within the EU legal system, it is important to add the premise that there are no provisions in the existing treaties that expressly forbid this option. Article 310 (1) TFEU on the unity of the budget is not an absolute principle, as there are several EU bodies counting on their own separate resources, notably the European Investment Bank, the European Central Bank and the European Development Fund. These bodies, however, either have an independent legal personality (ECB, EIB) or their expenditure is referred to the Member States (EDF). See Repasi (2013), pp. 12–17.
- 207.
- 208.
- 209.
On 14 February 2013, the European Commission made a proposal for a Council Directive implementing enhanced cooperation on a Financial Transaction Tax (FTT) following the request by 11 Member States. The directive is based on art. 113 TFEU. The tax would apply to financial transactions between two parties, one of which is a financial institution established in a participating Member State. See Hinarejos (2015), pp. 107–108.
- 210.
Pilz (2017), p. 641.
- 211.
See supra Sect. 4.2.4.2.
- 212.
See supra Sect. 5.3.3.4.1.
- 213.
The European Cohesion Policy already provides for the transfer of resources between Member States through a central authority. See Tuori and Tuori (2014), p. 255.
- 214.
Brauneck (2018), p. 82.
- 215.
€351.8 billions were set aside for cohesion policy measures in the 28 EU Member States within the MFF 2014–2020.
- 216.
See supra Sect. 4.2.4.4.
- 217.
Pilz (2017), p. 641.
- 218.
See Tuori and Tuori (2014), p. 255. This is something that has already happened in regard to the EFSM, which was backed by the EU budget, as well as the EFSF and the ESM. This mutualisation of risks for the financing of common mechanism may represent a violation of the no bailout clause .
- 219.
In regard to labour law and working conditions, art. 156 TFEU states that the Commission shall only encourage cooperation between the Member States and facilitate the coordination of their action in all social policy fields. On the possible harmonization of social security systems see Adamski (2018), pp. 167–170.
- 220.
- 221.
Cf. supra Sect. 5.5.2.
- 222.
‘Fundamental fiscal decisions on public revenue and public expenditure is part of the ability of a constitutional state to democratically shape itself’, German Federal Constitutional Court , Judgment, 30 June 2009, [2 BvE 2/08], para. 252: ‘A transfer of the right of the Bundestag to adopt the budget and control its implementation by the government which would violate the principle of democracy and the right to elect the German Bundestag in its essential content would occur if the determination of the type and amount of the levies imposed on the citizen were supranationalised to a considerable extent. The German Bundestag must decide, in an accountable manner vis-à -vis the people, on the total amount of the burdens placed on citizens. The same applies correspondingly to essential state expenditure.’ (para 256)’. The same principle was reaffirmed in German Federal Constitutional Court , Judgment of 7 September 2011 [2 BvR 987/10], para. 101, 104; German Federal Constitutional Court , Judgment of 12 September 2012, [2 BvR 1390/12], para. 106–107. The transfer of fiscal competences to the EU would constitute an ultra vires act and a violation of Germany’s constitutional identity.
- 223.
Nettesheim identifies five requirements for the participation in the mechanism: prohibition of external determination (Verbot der Fremdbestimmung), determination of the financial exposure (Bestimmtheit), calculability of financial consequences of participation (Begrenztheit und Übersehbarkeit der Folgewirkung), possibility to manage the participation and withdraw it (Steuerbarkeit /Umkehrbarkeit), sustainability of the financial effort (Verhältnismäßigkeit der absoluten Belastungshöhe). See Nettesheim (2011), pp. 772–777.
- 224.
German Federal Constitutional Court , Judgment of 7 September 2011 [2 BvR 987/10], para. 128.
- 225.
‘The German Bundestag may not transfer its budgetary responsibility to other actors by means of imprecise budgetary authorisations. In particular it may not, even by statute, deliver itself up to any mechanisms with financial effect which—whether by reason of their overall conception or by reason of an overall evaluation of the individual measures—may result in incalculable burdens with budget relevance without prior mandatory consent, whether these are expenses or losses of revenue’. German Federal Constitutional Court , Judgment of 7 September 2011 [2 BvR 987/10], para. 125.
- 226.
‘[T]he German Bundestag participates in the further execution of the statutes merely in the form of giving information to the budget committee’. German Federal Constitutional Court , Judgment of 7 September 2011 [2 BvR 987/10], para. 139.
- 227.
On the position of other constitutional courts on the matter see Fabbrini (2016), pp. 68–89.
- 228.
See High-Level Group on Own Resources (2016), p. 27; Fabbrini (2016), p. 164. The German Constitutional Court has ruled out that the own resources are incompatible with the Grundgesetz, as they are decided by the Member States and ‘art. 311 TFEU does not empower the EU to provide itself by its own authority with the financial means and other resources it considered necessary for the fulfilment of its objectives’. German Federal Constitutional Court , Judgment, 30 June 2009, [2 BvE 2/08], para. 323.
- 229.
Pilz (2017), p. 643.
- 230.
A newly European fiscal board, should monitor the effective existence of these conditions and the correct functioning of the transfer mechanism. Cf. Explanatory Statement of the European Parliament Resolution (2017), pp. 23–24. On the role of expert bodies in the economic governance see Tuori and Tuori (2014), p. 221.
- 231.
This condition is meant to be respected in the project of BICC as resources for investment and reforms will be granted on request of the Member States.
- 232.
See supra Sect. 5.3.3.4.3.
- 233.
- 234.
From the point of view of international law , it consists of a succession of treaties relating to the same subject-matter. This phenomenon is regulated by art. 30 VCLT.
- 235.
See supra note 155.
- 236.
The Commission noticed that the flexibility clause had been used several times already in the -process of economic and monetary integration: i.e. decisions on the European Monetary Cooperation Fund, the European Currency Unit and the first balance of payment mechanisms. See Explanatory Memorandum of European Commission Proposal for a Regulation (2017), p. 5.
- 237.
See Explanatory Memorandum of European Commission Proposal for a Regulation (2017), p. 11. In the Pringe Judgment the Court did not exclude the application of art. 352 TFEU for the use of a permanent mechanism. It simply acknowledged that such a decision has not been adopted by the EU institutions. Cf. ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 67.
- 238.
Brauneck (2018), p. 83.
- 239.
Editorial Comment (2018), pp. 712–713.
- 240.
Brauneck (2018), pp. 83–84.
- 241.
- 242.
See ECJ Judgment of 27 November 2012, Case C-370/12, Thomas Pringle v Government of Ireland, ECLI:EU:C:2012:756, para 167.
- 243.
Schwarz (2014), pp. 411–412.
- 244.
European Commission Proposal for a Directive (2017).
- 245.
Art. 3 of the Protocol on the EDP states that ‘[t]he Member States shall ensure that national procedures in the budgetary area enable them to meet their obligations in this area deriving from these Treaties’.
- 246.
Cfr. Supra Sect. 4.2.3.
- 247.
Art. 20 TEU may be used as the norms of the TSCG would fall within the sui generis competence of economic coordination ex art. 2(3) TFEU. See Lo Schiavo (2017b). p. 215. Another option may be the use of art. 136 TFEU even if the TSCG was adopted by 25 Member States, while this norm applies only to the countries, whose currency is the euro. Ibid. p. 216. The use of the enhanced surveillance or art. 136 TFEU may also help overcoming the unanimity rule foreseen under art. 126(14) TFEU. See Croci (2018), p. 7.
- 248.
European Commission Report (2017).
- 249.
Editorial Comment (2018), p. 710.
- 250.
‘Even in the most decentralized federations in our sample (Canada, Switzerland, and the United States), the federal government’s own revenue and expenditure represent about half of general government final spending (or 15–20 percent of GDP). This is in sharp contrast with the minimal size of the EU budget—it barely accounts for 2 percent of general government spending (1 percent of EU GDP)’. Cottarelli and Guerguil (2014), p. 4.
- 251.
The ESM has already used 20% of its resources, in particular €50 billions to Greece , €41 billions to the Spanish banking system and €9 billions to Cyprus .
- 252.
In 2018, Italy had a public debt of around €2.300 billions.
- 253.
Buchheit and Gulati (2018), p. 66.
- 254.
On the stabilization impact of a Eurozone budget compared to its size cf. European Commission Staff Working Document (2018), p. 52. Taking for instance the stabilisation function, even a budget between €50 and 70 billion would be able to apply counter cyclical policy only in no more than few Member States. See Wolff (2017), p. 7.
- 255.
According to the draft MFF 2021–2027, the new delivery tool for the euro area in favour of structural reforms should count on less than €25 billion, while the European Investment Stabilisation Function in charge of stabilising investment levels in the Member States in the event of a large asymmetric shock should consist only of back-to-back loans under the EU budget of up to €30 billion, coupled with a grant component to cover the costs of the interestEuropean Commission Communication (2018), pp. 10–11. The Ministers of Finance of the euro area have considered to provide the BICC with around €17 billion.
- 256.
- 257.
Fabbrini (2016), pp. 178–179.
- 258.
The conferral of fiscal competence at European level shall be an effective instrument to reduce surveillance on national parliaments . As it can be noticed in federal countries, which are presenting different levels of fiscal authority, the parliaments of the Member States enjoy some wide autonomy in the management of their fiscal rights, because the federal authority has sufficient resources and the competence to discharge them from several tasks, including the management of asymmetric shocks and the correction of regional imbalances. As noticed by Hinarejos, fiscal federalism protects national autonomy more effectively than strict European surveillance. Cf. Hinarejos (2015), p. 191.
- 259.
- 260.
- 261.
Such mechanism would turn the common transfer system into a system of implicit debt (without interests). The problem is that in this way the country would do deficit. Genuine transfers would instead better absorb a shock. Hebous and Weichenrieder (2015), p. 15.
- 262.
See Dolls et al. (2016), p. 13.
- 263.
Cf. art. 4 of European Commission Proposal for a Regulation (2018b) According to Gros, the euro area needs a system that offsets shocks which are rare, but potentially catastrophic. The small shocks may instead be managed at national level, also through borrowing. The ESM is not currently able to fulfil this function because it only grants loans, while the insurance mechanism should provide transfers. One way to do that would be to create a system of reinsurance of national unemployment insurance systems. Gros (2018), pp. 5–6. Rather than be a rainy-day fund, it will consist of a stormy-days fund.
- 264.
- 265.
- 266.
Hebous and Weichenrieder (2015), pp. 14–15.
- 267.
On the issue see Calmfors (2015), pp. 23–24.
- 268.
The European fiscal board should provide semi-binding opinions to the Council in the framework of the SGP .
- 269.
Hebous and Weichenrieder (2015), pp. 18–21.
- 270.
European Commission Communication (2017a), pp. 10–12.
- 271.
Ibid., pp. 10–12.
- 272.
See supra Sect. 5.3.3.2.
- 273.
German Federal Constitutional Court , Judgment of 7 September 2011 [2 BvR 987/10], paras 101, 104; German Federal Constitutional Court , Judgment of 12 September 2012, [2 BvR 1390/12], para. 106–107; the Estonian Constitutional Court expressed a different opinion on the matter and precisely stated that national parliaments can limit their budgetary sovereignty in order to protect other important constitutional values, such as financial stability . Estonian Supreme Court, Constitutional Judgment, 3-4-1-6-12, 12 July 2012, paras 208–209.
- 274.
It is possible to have some preview of what may happen by considering the role of national parliaments in the ESM. The mechanism can intervene only once received the green card by nine national parliaments , which is not something always easy to achieve.
- 275.
According to Fasone, the European Parliament acting in coordination with national parliament could re-establish trust between people and the EU. Through inter-parliamentarian cooperation, the European Parliament should push the national parliaments to ‘filter’ what happens at national level by taking into consideration the European common interests. It is also needed a simplification of economic coordination and a stronger democratic scrutiny. Fasone (2014), pp. 184–185.
- 276.
Pilz (2017), p. 644.
- 277.
This will be particular important to help setup taxes based on revenue, which only national parliaments are competent to levy.
- 278.
- 279.
European Parliament Resolution (2017).
- 280.
For example the European Parliament should participate in the approval of the MAP .
- 281.
If the additional budgetary capacity was established within the framework of the EU budget, the ordinary legislative procedure should be used to approve the new own resources system and the new MFF.
- 282.
According to the Resolution of the European Parliament of February 2017 on the budgetary capacity of the Eurozone, the convergence code fixing the eligibility criteria should be adopted through the ordinary legislative procedure. Cf. European Parliament Resolution (2017).
- 283.
- 284.
According to Fasone, the difficult settlement of inter-parliamentarian cooperation depends also on the fact that the European Parliament doesn’t want to be threaten like the other domestic parliaments of the Union. Cf. Fasone (2014), p. 178. On the inter-parliamentary cooperation in the field of the economic governance cf. also Kreilinger (2016) and Cooper (2016).
- 285.
Chalmers (2012), p. 687. According to art. 10 of Protocol (No 1) on the Role of National Parliaments in the European Union, the Conference can only submit contribution for the attention of the European Parliament, the Council and the Commission, promote the exchange of information and best practice between national Parliaments and the European Parliament, including their special committees.
- 286.
See Protocol (No 2) on the application of the principles of subsidiarity and proportionality.
- 287.
- 288.
A similar perspective would undeniably require not only an overall Treaty amendment, but also a profound reform of national constitutional law. Cf. Calliess (2011–2012), p. 104. See, German Federal Constitutional Court , Judgment, 30 June 2009, [2 BvE 2/08], para. 179.
- 289.
On the establishment of a Eurozone level of democracy see Lionello (2017), pp. 179–194. In favour the setup of a Eurozone parliamentary scrutiny see: Hennette et al. (2017). Against see: Allemand and Martucci (2014), pp. 115–131; Fabbrini (2015), pp. 823–846; Fabbrini (2016), pp. 208–220. According to Calliess the euro area should set up a separate chamber next to the Council and the European Parliament and co-decide on every policy effecting the governance (i.e. budgetary, social, labour policies). National parliament should be provided with the right to ask for a suspension of a European decisions (red card). Calliess (2016), p. 55.
- 290.
Even the President of the European Commission Juncker has stated that the Parliament of the euro area can only be the European Parliament President. Jean-Claude Juncker’s state of the Union Address 2017.
- 291.
Cf. supra Sect. 4.4.2.
- 292.
Within the limits of the existing legal framework the European Parliament has adopted on December 2013 a Resolution to create an informal parliamentary scrutiny for the Economic and Monetary Union on the basis of a political agreement between political groups. Cf. European Parliament Resolution (2013).
- 293.
Hennette et al. (2017), pp. 41–44.
- 294.
For an overview of the authors in favour of these three options see Verlhest (2014), pp. 19–21.
- 295.
Hennette et al. (2017), pp. 31–38.
- 296.
This might be necessary if national constitutional courts required that domestic parliamentary representations shall agree on any fiscal decisions made at the European level.
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Lionello, L. (2020). Completing the Economic Union: The Different Paths Towards Stability. In: The Pursuit of Stability of the Euro Area as a Whole. Studies in European Economic Law and Regulation, vol 18. Springer, Cham. https://doi.org/10.1007/978-3-030-28045-1_5
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