EU governments intend to build an elite agency to fight the next economic crisis, but they want to shove the European Commission and Parliament to the sidelines.
Europe’s policymakers agree on the need to upgrade the eurozone’s bailout arm — the European Stability Mechanism (ESM) — into a powerful new European Monetary Fund (EMF). The Council of the EU, however, is trying to use a backdoor procedure to set up the EMF without resorting to the usual EU legislative process, six EU diplomats told POLITICO.
Even countries outside the EU’s single currency bloc are happy to go along with this strategy (all EU members, except Denmark and the U.K., are obligated to eventually adopt the euro). If governments share control with MEPs and Eurocrats, finance ministers fear the work of the eventual EMF would get far too political to function properly, one non-eurozone Council official said.
“We don’t trust the Commission to enforce rule-based frameworks,” the official said. “It wouldn’t be able to handle the ‘too-big-to-fail’ countries. That’s why it’s better to keep intergovernmental control.”
MEPs and Commission officials are outraged at the Council move, which would leave them powerless to influence the transformation of the ESM into the EMF and hold the latter to account.
The upgraded ESM would have the ability to develop new financial capacity, like a rainy-day fund and targeted short-term loan operations, for countries that slide into economic difficulty.
Udo Bullmann, acting leader of the Socialists & Democrats group, warned that if “member states intend to continue down this path … they are committing a grave mistake.
“Our group is adamant that further integration in economic and fiscal policy must occur within the Union framework, based on the community method with full parliamentary involvement,” he added. “This is what we will keep fighting for.”
The EU’s executive arm refused to comment. But two eurozone diplomats said Commission officials had privately expressed frustration to Council members about their strategy.
The ESM emerged from Europe’s sovereign-debt crisis as the go-to institution handling a succession of bailouts for Portugal, Spain, Ireland, Cyprus and Greece. The agency has a maximum lending capacity of €500 billion, which is backed by taxpayer money.
Part of eurozone reform
On December 6, the Commission proposed a plan to create an EMF, as part of an overhaul of the eurozone’s monetary and economic system. The upgraded ESM would have the ability to develop new financial capacity, like a rainy-day fund and targeted short-term loan operations, for countries that slide into economic difficulty. It would also function as the financial backstop for the fund that the EU’s resolution authority uses in rescuing banks.
Crucially, the Commission said the EMF would have to be fully accountable to the Parliament, which would have the power to demand public and confidential hearings with the agency’s head. The EMF would also have to present reports on its activities to MEPs “together with its annual accounts,” the proposal said. All this is meant to be enshrined in EU law.
Eurozone finance ministers are expected to keep largely intact the proposals on the EMF’s functions.
But “the accountability [to the Parliament] is quite ridiculous,” one eurozone diplomat with close knowledge of the Council plan said. “Bringing [the ESM] into the EU community … adds nothing … It’d just get more complicated.”
To avoid the legislative process the Commission plan envisions, Council officials working for EU finance ministers have identified an informal task force that derives from the Economic and Financial Committee (EFC).
The Council created the EFC in 1999 to review the economic and financial situation of member countries. The EFC, in turn, created the “task force on coordinated action” at the height of the sovereign crisis to facilitate close cooperation among eurozone finance ministries.
The only chance that the Parliament has of staying relevant on the EMF initiative lies squarely in the hands of eurozone heads of state, who will meet in Brussels in March.
It was this task force that ultimately laid the groundwork for the ESM, which is run by eurozone finance ministers sitting on its board of governors.
The Council’s EMF plan is simple. Finance ministers have decided to turn again to the task force and instruct it to tinker with the Commission’s proposal and update the existing treaty on the ESM to create an EMF. The task force will likely strip any mention of accountability to the Parliament.
If so, the only chance that the Parliament has of staying relevant on the EMF initiative lies squarely in the hands of eurozone heads of state, who will meet in Brussels in March.
The leaders will gather specifically to discuss the eurozone’s overhaul and could still change the direction set by their finance ministers, if they choose to.
“The Parliament’s role will [ultimately] depend on the March summit,” another Council official said. “But [MEPs] are right to have concerns.”