December 5, 2017 / 11:13 PM / in 9 days

EU exec proposes deeper euro zone integration to unite EU

BRUSSELS (Reuters) - The European Commission proposed on Wednesday ideas for deeper euro zone integration in an effort to help unite the broader European Union, as eurosceptic sentiment grows across the EU and Britain prepares to leave the EU in 2019.

The Commission, the EU’s executive arm, presented a package of proposals aimed at giving the 19 countries sharing the euro better protection against future financial crises.

But plans to tighten cooperation among the 19 euro countries have sparked concern among the eight non-euro countries that they will become second-class members of the EU, with less say - and less funds - in the future.

To alleviate those fears, the Commission stressed that all their proposals were open to all EU members, even though that clashes with the thinking of some euro zone leaders, such as French President Emmanuel Macron.

Macron has called for creating a euro zone budget of several hundred billion euros, a euro zone finance minister and a euro zone parliament.

The Commission proposed creating cash incentives for countries for structural reforms and special funds for non-euro economies, all of which - except Denmark - are obligated to adopt the euro at some point, to prepare for euro adoption.

But heavyweight Germany was quick to pour cold water on one key part of the plans putting in doubt just how far they would get.

EURO ZONE “BUDGET”

The Commission backed the idea of setting up what it calls a euro zone “stabilisation function”, because the monetary policy of the European Central Bank cannot deal with economic crises that hit only one or a few countries in the euro zone.

That would be a pool of money to protect investment with loans and a relatively “limited grant component”, the Commission said. To be effective and credible, it should be big enough to pay out at least 1 percent of GDP and be allowed to borrow.

Access to the “stabilisation function”, managed by the Commission, would be for those who stick to EU rules.

The money would come from loans from the EU budget, voluntary contributions from governments and loans from the euro zone bailout fund with guarantees from the EU budget. The Commission said that for this to work, “a limited borrowing capacity could be constructed” in the next EU budget.

Germany expressed reservations though.

“I don’t think it makes sense to prejudge anything, but the outgoing government was not convinced that new buffers at the European level are necessary,” Germany’s acting finance minister Peter Altmaier said.

EUROPEAN FINANCE MINISTER

Instead of a euro zone finance minister, the Commission called for naming a pan-European Minister of Economy and Finance, who would also be a senior member of the European Commission and chair meetings of euro zone finance ministers.

The minister would also oversee the work of the euro zone bailout fund as the chairman of its board, much like the head of euro zone finance ministers, the Eurogroup, does now.

The job might be created when the next European Commission starts work in November 2019, the Commission said, and whoever gets it would be accountable to the European Parliament.

Under the current arrangement, the chair of the euro zone finance ministers, the closest thing the bloc now has to a single finance minister, often testifies before the parliament’s economic committee, but it has no power over him or her.

Euro zone finance ministers have little enthusiasm for allowing the Commission, which is only an observer at their monthly meetings, to chair their talks.

EUROPEAN MONETARY FUND

Other euro zone integration ideas, floated by Germany, include transforming the euro zone’s government-owned and run bailout fund into a European Monetary Fund.

The Commission backed that idea, but said the EMF should become an EU institution, which would be overseen by the European Parliament -- an idea officials have said would not fly with governments.

The EMF, which the Commission hopes to get agreement on by mid-2019 from governments and the European Parliament, would also provide a 60 billion-euro backstop for the bank-funded Single Resolution Fund.

The Commission did not address the proposal of Germany and backed by Slovakia and the Netherlands to create a sovereign insolvency mechanism that would put pressure on governments to conduct prudent fiscal policy.

Economists were not impressed with the Commission proposals.

“A first browsing of the documents allows us to conclude that hardly anything will change,” ING economist Carsten Brzeski wrote in a note to clients. “Today’s proposals go in the right direction but are not new and clearly not a game changer.”

Reporting By Jan Strupczewski; Editing by Hugh Lawson, Larry King, Richard Balmforth

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