Euro zone finance ministers will discuss next week completion of the banking union, ideas for setting up a common budget and ways to simplify the bloc's fiscal rules, in preparation for a December summit on reforming the currency area.
No conclusions are likely to be reached at the Eurogroup meeting on Monday, however, as there are widely differing views among the 19 countries that share the euro on most aspects of reform.
"It will be more laying out the table before cooking starts," one senior euro zone official said.
The Dec. 15 euro zone summit will start six months of deliberations on deeper integration, with a further summit in June 2018 taking decisions on how the single currency area will look in future.
Among the possible changes are ideas for a special pool of money for euro zone countries that would be managed by a finance minister for the whole of the euro zone and who would answer to a euro zone caucus in the European Parliament.
Other proposals include turning the euro zone bailout fund into a European Monetary Fund and creating a sovereign insolvency mechanism that would put market pressure on governments to conduct prudent fiscal policies.
Some euro zone officials believe the involvement of markets is necessary because EU fiscal rules -- the Stability and Growth Pact -- have become so complex and prone to political interpretation that they are no longer effective.
Finance ministers will discuss on Monday how to make them simpler, because the rules have grown from a budget deficit cap of 3% of GDP and 60% of GDP limit on public debt in 1992 to hundreds of pages of legal text and explanations.
"We went from one article in the Maastricht Treaty to 400 pages and it is not 400 times better," the official said.
But with no agreement on any aspect of reform, the debate will be difficult.
On the main element, the euro zone budget, views on its size range from hundreds of billions of euros, to no budget at all.
There is no agreement whether it should be financed from special taxes or country contributions, or if it should lend money or make transfers. Some countries want the budget to support reforms or investment, while others think it should be used to pay unemployment benefits or counter macroeconomic shocks that hit a small number of few euro zone countries.
Nor is there agreement on how to complete the euro zone's banking union through a pan-European deposit insurance scheme.
Germany is fiercely opposed to the plan because it fears that wealthier German banks might end up propping up weaker rivals in other EU states, like Italy, where a large number of bad loans poses a risk to the stability of the banking sector.
Yet officials argue such a European deposit insurance scheme (EDIS), meant to cover insured savers up to 100,000 euros in case of a bank failure, is needed to make the euro zone banking system more stable.
After two years of fruitless talks, the European Commission presented a new proposal earlier in October that introduces the scheme more gradually than initially planned, allowing time to reduce existing risks in banks across the euro area. (Reuters)
Source: www.businessworld.ie
