Social Europe

politics, economy and employment & labour

  • Themes
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

Macron Président: Setting Up Another Round Of Conflict On EMU Reform?

Björn Hacker and Cédric Koch 9th May 2017

Björn Hacker

Björn Hacker

With Emmanuel Macron becoming France’s new President, one item expected to be marked urgent on his to-do-list will likely be a restart of negotiations on a bolder reform of European Monetary Union (EMU). It is improbable that Macron will push for his liberal reform agenda at home before autumn owing to parliamentary elections in June. Instead, he might turn to European issues, thereby trying to demonstrate effectiveness after taking office. However, his proposals for far-reaching transformation of the Eurozone will face strong opposition from abroad, notably in Germany.

Post-crisis efforts to reform the Eurozone have been under way since 2011 and have already led to important, albeit incomplete institutional changes, such as the Banking Union. But member states failed to achieve consensus on further-reaching reforms, with the effect that proposals under discussion encompass a wide range of differing objectives and scales. After the first reform initiative failed in 2012, the process was due to be relaunched from early 2015 onwards through the Five Presidents’ Report based on contributions from all the EU member states. Eventually, the European Commission, which leads the process, published a White Paper on the Future of Europe in March 2017 and announced the publication of a Reflection Paper on deepening Monetary Union for May 2017, which is to be based on that Five Presidents’ Report. As is apparent from recent efforts, however, any emboldened French push for renegotiation or more concerted move will again bring to the surface some of the deepest fault lines among EU member states.

Cédric Koch

Cédric Koch

Worlds apart: diverging EMU paradigms

The disagreements over the reforms needed for the Eurozone are rooted in fundamentally different economic paradigms, which already shaped the founding phase of today’s EMU. One camp argues for the vision of EMU as a stability union, based on principles of internal and external price stability and prioritising rules-based self-regulation of free market forces to minimise political risk. The opposing camp pursues the vision of fiscal union, based on the conviction that the inevitability of market failure means that transnational economic governance must address more than mere price stability. The two visions represent diametrically opposed conceptions of a complete and functioning EMU and consequently diverge widely in their interpretations of the causes of the crisis and the required reform steps.

The stability union/fiscal union divide was fundamental in the process leading to the Five Presidents’ Report. Member states’ contributions communicated in this process to Brussels and the demands contained therein can be classified according to the two diverging reform perspectives into a “map of reform conflict” (see Figure 1):

  • Proponents of a stability union (Finland, Estonia, Lithuania, Germany, Malta, the Netherlands, Denmark, Romania, Hungary) reject both expansion of economic governance and deeper fiscal integration.
  • Proponents of a fiscal union (Italy, Spain, Portugal, Belgium, Luxembourg, Slovenia, Latvia, France) argue for expansion of both economic governance and fiscal integration.
  • Proponents of a fiscal union with restrictions (Cyprus, Slovakia, Croatia, Poland, Ireland, Austria, Czech Republic) call in principle for the EMU’s development but favour movement on only one front: either more economic governance or steps towards fiscal integration.

hacker graph01


Become part of our Community of Thought Leaders


Get fresh perspectives delivered straight to your inbox. Sign up for our newsletter to receive thought-provoking opinion articles and expert analysis on the most pressing political, economic and social issues of our time. Join our community of engaged readers and be a part of the conversation.

Sign up here

Minority rule

The composition of the three camps reveals fiscal union proponents to be the largest group in terms of both population and GDP, holding a narrow majority within the Eurozone even without the supporters of a restricted fiscal union. Proponents of a stability union represent a minority position, being the smaller group under both criteria. The camps also tend to reflect the different economic contexts of the member states: those with higher unemployment dominate the fiscal union group while those with low levels of debt make up the stability union camp.

The stability union proponents are considerably more consistent in their demands than the fiscal union group, which exhibits great variation in key details. This is partly a function of the clearer position of the stability camp, which wants to strengthen existing instruments but rejects steps going beyond the status quo of the existing Eurozone architecture. Their objective is to enhance community-level control over national economic policy to secure structural reforms and budgetary compliance. This control would be guaranteed rather by automatic sanctions than by a Eurozone finance minister with a political mandate. Avoidance of rule-breaking and all forms of transnational transfers and responsibilities as well as reinstating the no-bailout principle (possibly with an insolvency procedure for states) are the main ambitions of the stability camp. The supporters of a fiscal union, on the other hand, are calling for far-reaching reforms in a range of different areas, but share only a small common denominator. Some states plead in favour of a broad set of new instruments, like Eurobonds, a fiscal capacity allowing cyclical financial transfers between the member states as an automatic stabiliser to asymmetric shocks, and go as far as a close coordination of economic, employment and social policies in the Eurozone with the longer term objective of a political union – with an economic government for the Eurozone. Others agree with just some of these proposals and individual positions differ regarding both the scope and timing of reform proposals. What they share is the wish to complement Banking Union, to better use the Macroeconomic Imbalance Procedure on an equal footing with budgetary surveillance and – very generally – to implement some kind of transnational liability in the Eurozone for risk-sharing.

Déjà vu?

Thus, the euro crisis has reopened a fundamental conflict over the right mix between rules-based free markets and policy intervention. A determined and economically relatively successful group led by Finland and Germany wants to permit only tinkering with the EMU status quo, while a disunited group struggling with economic difficulties, led by Italy and France, is calling for far-reaching fiscal and political integration. In the absence of any decisive choice between the two perspectives, the reform debate has been protracted since 2012 and creates unsustainable compromises, as in the case of Banking Union. Already as Minister of Economic Affairs, Macron aimed to bridge this EMU division by looking for alternative thoughts on the other side of the Rhine. Together with his then-counterpart Sigmar Gabriel he published in 2015 ideas for an “Economic and Social Union”. A process of convergence by setting up an ‘economic Schengen’, a Eurozone budget and institutional alterations, like a Eurozone grouping inside the European Parliament, have been at the heart of their common proposal. As a candidate, As a candidate, Macron has repeatedly indicated that EMU will remain incomplete and poised to fail without major reforms.

In warning signals to Germany and the stability union camp, he suggested several times to move towards investment and institutional changes instead of austerity and defending the status quo. Macron as elected French President will conceivably promote a Fiscal Capacity, Eurobonds, completion of the Banking Union and a more balanced regulation of current account balances as instruments to shift the Eurozone towards a fiscal union. To be successful, he ought to study where his allies stand and then close ranks in the fiscal union camp. Otherwise his European ambitions will turn out as shrivelled as his predecessor’s once the German Finance Minister delivers the stability union’s “Nein” to these plans. 

The authors’ study “The divided Eurozone. Mapping conflicting interests on the reform of the Monetary Union” can be downloaded for free at Friedrich-Ebert-Stiftung Brussels.

Björn Hacker and Cédric Koch

Dr. Björn Hacker is Professor of Economic Policy at the Berlin University of Applied Sciences (Hochschule für Technik und Wirtschaft). Cédric M. Koch works in the Department of Economics and Law at the Berlin University of Applied Sciences (Hochschule für Technik und Wirtschaft) as well as for the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).

You are here: Home / Economy / Macron Président: Setting Up Another Round Of Conflict On EMU Reform?

Most Popular Posts

Belarus,Lithuania A tale of two countries: Belarus and LithuaniaThorvaldur Gylfason and Eduard Hochreiter
dissent,social critique,identity,politics,gender Delegitimising social critique and dissent on the leftEszter Kováts
retirement,Finland,ageing,pension,reform Late retirement: possible for many, not for allKati Kuitto
Credit Suisse,CS,UBS,regulation The failure of Credit Suisse—not just a one-offPeter Bofinger
Europe,transition,climate For a just and democratic climate transitionJulia Cagé, Lucas Chancel, Anne-Laure Delatte and 8 more

Most Recent Posts

Barcelona,feminist,feminism Barcelona: a feminist municipalism now at riskLaura Pérez Castaño
Spain,elections,Sánchez Is Spain on the right track?Bettina Luise Rürup
CBI,Confederation of British Industry,harassment Crisis at Britain’s CBI holds lessons for othersMarianna Fotaki
central and eastern Europe,CEE,renewable Central and eastern Europe: a renewable-energy win-winPaweł Czyżak
Cape Town,inequality Tackling inequality in the city—Cape TownWarren Smit

Other Social Europe Publications

Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ETUI advertisement

The four transitions and the missing one

Europe is at a crossroads, painfully navigating four transitions (green, digital, economic and geopolitical) at once but missing the transformative and ambitious social transition it needs. In other words, if the EU is to withstand the storm, we do not have the luxury of abstaining from reflecting on its social foundations, of which intermittent democratic discontent is only one expression. It is against this background that the ETUI/ETUC publishes its annual flagship publication Benchmarking Working Europe 2023, with the support of more than 70 graphs and a special contribution from two guest editors, Professors Kalypso Nikolaidïs and Albena Azmanova.


DOWNLOAD HERE

Eurofound advertisement

Unaffordable and inadequate housing in Europe

Unaffordable housing is a matter of great concern in the European Union. It leads to homelessness, housing insecurity, financial strain and inadequate housing. It also prevents young people from leaving their family home. These problems affect people’s health and wellbeing, embody unequal living conditions and opportunities, and result in healthcare costs, reduced productivity and environmental damage.

This new report maps housing problems in the EU and the policies that address them, drawing on Eurofound’s Living, working and Covid-19 e-survey, EU Statistics on Income and Living Conditions and input from the Network of Eurofound Correspondents.


DOWNLOAD HERE

Foundation for European Progressive Studies Advertisement

The spring issue of the Progressive Post magazine from FEPS is out!

The Special Coverage of this new edition is dedicated to Feminist Foreign Policy, to try to gauge its potential but also the risk that it could be perceived as another attempt by the west to impose its vision on the global south.

In this issue, we also look at the human cost of the war in Ukraine, analyse the increasing connection between the centre right and the far right, and explore the difficulties, particularly for women, of finding a good work-life balance and living good working lives.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube