One of the key fiscal instruments of the common economic policy under the management of the Treasury Secretary will be the European Stability Mechanism (ESM). This was established in 2012, by way of a revision of the Lisbon treaty, with the aim of ensuring the financial stability of the eurozone in time of crisis [86].  The ESM may loan credit by way of precaution, to help structural adjustment and to recapitalise banks. It is run on intergovernmental lines. 

It is already agreed in principle to transform the ESM into a European Monetary Fund, although the modalities of the shift are controversial [87].  All existing pooled funds would be merged in the EMF. Part of that contribution, notably the European Financial Stability Mechanism created in 2010, is funded by the EU budget and subject to the control of the European Parliament [88].  But the ESM is financed by direct contributions from member state treasuries, and is subject to control by national parliaments. The EMF will remain a hybrid body until such time as all funds are raised through the EU budget and governed federally. But the end point must be established firmly at the start: a federal fund operating wholly within the framework of Union law, protecting the prerogatives of the Commission to monitor the conduct of national economic policies. A worthwhile EMF would have wide responsibilities, acting as backstop for the Single Resolution Fund, but also be empowered to intervene at early stages of a crisis of the banking union.

The ‘Two Pack’ legislation obliges the euro area states to present their national budget plans ex ante to the Commission for comment and, if necessary, corrective recommendations, in the context of a ‘European semester’ [89].  The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union - otherwise known as the fiscal compact treaty   is signed by all states apart from the UK, and seeks to go further in terms of imposing fiscal discipline within the euro area. The Commission is proposing a regulation to incorporate any still relevant provisions of the fiscal compact treaty into the framework of Union law. 

We see no good argument for the creation of a separate parliamentary assembly for the euro area, or for a blurring of the mandates between European and national parliamentarians in some new joint body. The European Parliament is the parliament of the eurozone just as the euro is the currency of the Union. There is deep interdependence between the euro and non-euro states. All MEPs should participate in EMU debates. For specified fiscal laws pertaining just to the euro states, the Parliament should amend its rules of procedure to require special majorities among MEPs elected in the euro area. Special euro area voting procedures already exist in the Council [90].

Nineteen member states have adopted the euro and constitute some 85% of the EU economy. Brexit means that there will be only one country left, Denmark, which is not legally committed to joining the single currency. But in practice Denmark already conforms as a member of the euro area, and it should now subscribe to the banking union in full. Joining the banking union should be a prerequisite for all other states, like Bulgaria, which are completing their preparations to join the euro. 

One useful addition to the treaty would be to provide clearer lines of engagement between the Eurogroup and those states intent within the near future on meeting the convergence criteria and joining the single currency (officially states “with a derogation”). Participation of ministers from such genuine ‘pre-in’ states should be guaranteed when discussions in the Eurogroup or at euro summit level concern the architecture of the eurozone and the basic rules of fiscal discipline. Membership of the exchange-rate mechanism (ERM II), at present only held by Denmark, could be one such criterion [91].  

[86] Article 136 TFEU was amended under Lisbon’s new ‘simplified revision procedure’, Article 48(6) TEU.
[87] Not least is the Commission’s proposal that the conversion of ESM into EMF can be done on the basis of Article 352 TFEU, without requiring treaty change. 
[88] The EFSM was created under Article 122(2) TFEU to provide financial assistance to a state in trouble.
[89] Article 136 TFEU. 
[90] Article 136(2) TFEU.
[91] Article 140(1) TFEU.


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