Eurozone Watch

Two publicly unnoticed events during these two last weeks are worthwhile being discussed from an EMU governance perspective.

• On Wednesday, 22 November 2006, Jean-Claude Juncker in his role as President of the Eurozone gave an assessment of the prospects of the Eurozone to the European Parliament’s Committee on Economic and Monetary Affairs.
• On Tuesday, 14 November 2006, the European Parliament adopted a Resolution on the 2006 Annual Report on the Eurozone. 

Both events give evidence of an increasing but hardly noticed institutionalisation of the Eurozone in the EU’s institutional framework.

The first aspect concerns the Eurogroup. The informal meeting of EMU’s national ministers of finance and the economy has no formal status in the EU and is not based on any primary or secondary legislation. It is no Council formation, which gives it the privilege to meet in a smaller group and according to participants hence much more constructive and confidential atmosphere than the Ecofin can provide for.

Since the start of EMU, despite its informality, the Eurogroup has steadily increased its political role in the EMU’s economic governance. Thanks to the fact that the Eurozone Ministers come together just before the monthly Ecofin meetings, the Eurogroup de facto pre-agrees Ecofin decisions with relevancy for the Eurozone. 

The role of the Eurogroup was reinforced by the decision to install a two-year Presidency for the Eurozone. Jean-Claude Juncker became the first Mr. Euro on 1 January 2005, and is heading for his second term in office starting on 1 January 2007. The fact that the Eurogroup is freed from a 6-monthly rotating presidency that other Councils have to put up with, has not only streamlined the groups work internally. It has also considerably strengthened the Eurogroup’s standing in relation to the EU institutions.

The European Parliament is one example in this regard. Ever since Mr. Juncker put on the Euro-President’s hat, he is invited to the EP’s Committee on Economic and Financial Affairs twice a year. Before his nomination, the Eurozone was only “accidentally” present in the European Parliament, which only heard the Ecofin Presidents. So only if the EU Presidency was held by a Eurozone-Country would the Parliament’s committee actually talk to an elected politician representing the Eurozone.

This has now changed. As Mr. Juncker did last Wednesday, the Eurogroup President now exchanges his views with the EP’s monetary and financial committee every six months. This is a step forward in forging an intensified political dialogue on Eurozone issues, although Juncker is only invited half as often to the Committee than the “other Mr. Euro”, the ECB’s President who is sollicited four times a year.

The second aspect worth to be noted is the European Parliament’s increasing interest in Eurozone issues. One piece of evidence for this is the “Resolution on the 2006 annual report on the euro area” adopted on 14 November. The official reason for this resolution it the European Commission’s first annual report on the euro area (Eurozone Watch commented its first edition of July 2006 here).

The Parliament used this occasion to voice some interesting ideas into the debate on EMU’s economic governance:

• The EP asks the Eurogroup to agree on a roadmap on the objectives of the euro area for the next two years. This “work programme” for Juncker’s second Eurogroup Presidency would have the advantage of underlining the political identity of the Eurozone. Although there are no politically integrated governance structures on the horizon, this would be a useful step forward not only to underline its political visibility, but also to further streamline the work and commitment of national governments to a common agenda.
• The EP asks the Eurogroup, the Council and the ECB to step up coordination of their action in the area of exchange rate policy. This is definitely a timely advice. To date, the Eurozone has not yet had to intervene in exchange rate policies in a crisis situation, the only two precedents having been in the situation of a slow but persistent decline of the Euro on the exchange markets in 2000. Now, times are different. We may be heading for some currency turmoil, and the Eurozone has not yet consensually defined the means and procedures to tackle such a situation. Competence disputes between the Economic and Finance Ministers and the ECB are likely to surface.
• The European Parliament likewise asks the Commission to provide suggestions for a regular and structured dialogue on macroeconomic issues between the Eurogroup, the Commission and the Parliament. Meetings should take place four times a year. With this suggestion, the Parliament is clearly seeking to extend its role in economic governance in EMU. It is currently involved in neither of EMU’s pillars, be they called Stability and Growth Pact, be they called Cologne Process, or be they meetings of the Eurozone to which both the ECB and the Commission are invited.
• Finally, the EP suggests to hold regular meetings of the EP and national Parliaments in order to “develop a better ownership by national parliaments of the required economic policy coordination”. Indeed, the observation that national parliaments and governments often do not act in the Eurozone logic, or even openly decide against this, is well-taken. This idea of a multi-level parliamentary dialogue may be useful to raise awareness. It flanks the current debate on national fiscal rules to back up the Stability and Growth Pact, and has a potential to back up the consensus building processes of the Eurogroup. But it will not be able to change the logic of action of national politicians who mostly short-sightedly keep an eye of their constituency’s immediate interest.

All these points would improve the economic governance of the Eurozone to a certain degree. However, they entirely remain in the existing institutional logic of EMU with a strong monetary pillar, and nationally/regionally divided fiscal and economic policy competencies. From the European Parliament’s perspective these suggestions may be far-sighted. Compared to the debate that is currently developing in the academic and think tank world on the political dimension of EMU and the need of a political union they seem modest. Eurozone Watch will catch up with the further reaching arguments gaining ground the in EMU researcher community in the coming days!

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