EU Summit Draft: The Building Blocks for USofE

A draft of a document prepared for this week's summit by the President of the European Council, in collaboration with the Presidents of the European Commission, European Council and ECB has been made available today. As expected, the report, laid out a vision for deeper Eurozone integration via four essential building blocks:

• An Integrated Financial Framework to ensure financial stability in particular in the euro area and minimize the cost of bank failures to European citizens.
  
• An Integrated Budgetary Framework to ensure sound fiscal policy making at the national and European levels, encompassing coordination, joint decision-making, greater enforcement and commensurate steps towards common debt issuance.
  
• An Integrated Economic Policy Framework which has sufficient mechanisms to ensure that national and European policies are in place that promote sustainable growth, employment and competitiveness, and are compatible with the smooth functioning of EMU.
  
• Democratic Legitimacy and Accountability of decision-making within the EMU, based on the joint exercise of sovereignty for common policies and solidarity

The report says the first building block - an integrated financial framework - should include two central elements: a single European banking supervision and a common deposit insurance and resolution framework. The report noted that since the credibility of any deposit insurance scheme requires access to a financial backstop, the ESM could serve this purpose.

As for the second building block, the report notes that fiscal compact has already agree to and should be implemented quickly. In addition, there should also be a move towards a fiscal union. The report added that under the proposed rules, the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval. In addition, the issuance of common debt could be explored as an element of such a fiscal union and subject to progress on fiscal integration.

The third building block revolves around an integrated economic policy framework. The report said that stronger economic integration is needed to foster coordination and convergence in different domains of policy between euro area countries, address imbalances and ensure the capacity to adjust to shocks and compete in a global economy. It added that the framework for policy coordination should be more enforceable to make sure that unsustainable policies do not put Eurozone stability at risk, particularly when it comes to issues as labor mobility and tax coordination.

Finally, the fourth building block talks about the strengthening of democratic legitimacy and accountability. The report said that moving towards more integrated fiscal union and economic decision-making between countries will require strong mechanisms for legitimate and accountable joint decision-making.

In terms of when such a union could be developed, the report said that all four elements will require a great deal of further work, including possible changes to the EU treaties at some point in time. The report noted that an interim report could be presented in October, with another at the December summit.

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