Conference report: « Eurozone agreement: a mini revolution? What does the new Eurozone budget do, and what does it not do? What are its strengths and weaknesses? » – Bruegel – 8th of July 2019

Conference report: « Eurozone agreement: a mini revolution? What does the new Eurozone budget do, and what does it not do? What are its strengths and weaknesses? » – Bruegel – 8th of July 2019

The French Minister of Economy and Finance Bruno Le Maire was invited to give his point of view about European macroeconomics and governance and more precisely about the last month’s agreement (June) on the Eurozone budget, meant to take effect by 2021.

According to him, this agreement can be considered as a real revolution because for the first time in the Eurozone history there will be a Eurozone budget, while 2 years ago such a project seemed implausible. The euro is now 20 years old and is seen by the minister as a political and financial success by ensuring stability, trade and even lower interest rates.

However, the previous crisis (2008) has shown the weaknesses of the Eurozone. This is why Mr. Le Maire pointed out the need to reinforce the Eurozone and his intention to make the euro the strongest currency in the world in order to allow economic growth. Improvements are thus needed to protect jobs, businesses etc.

The French Minister talked about a step-by-step process, a unique window of opportunity with the importance of the newly elected European Commission and Parliament. 

One of the clear steps is the European stability mechanism, which has to be strengthened to prevent crises and to promote convergence of the Eurozone economy, beyond its former purpose, which was solely designed to fix crises.

He also explained the need to agree on specific resources for this budget. To him, the decision of the Eurozone budget should be taken by the 19 members of the Eurozone instead of the 28 members of the European Union. The Eurozone should have its own decision-making process. He further notified that France doesn’t want a tiny budget in that matter. Nevertheless, the Eurozone’s budget is still part of the EU budget. The heart of resources is thus based on the multiannual financial framework (MFF, the European budget). But it also has other resources like the financial transaction tax (TTF). 

This Eurozone budget is synonym of revolution because this could make Europe a stronger financial place in the world. Nevertheless, it needs to go further to transform the euro into a full efficient monetary union by 2021. In addition, it needs also more monetary instruments.  

To do so, Bruno Le Maire highlighted the absolute necessity for more growth within the Eurozone. He sees the lack of growth as a failure of the Eurozone.

He also criticised the lack of decision as feeding populism. Failing on providing growth within Europe would be a failure from the European Union. More economic and political stability would lead to prosperity and the creation of jobs for citizens, which themselves would contribute to sustain society stability.

Bruno Le Maire gave 3 main pillars to build a new growth for the Eurozone and a genuine capital market union:

  • The pursuit of structural reforms and the control of public finances, as there is a need to reinforce competitiveness (taxation system, pensions, labour market)
  • More investment and improvement of the efficient investment allocation within the euro area (States with fiscal space need to increase their investments toward innovations and infrastructures)
  • Further strengthening of the euro area (implementation of a Eurozone budget).

He said there is a need to build a genuine capital market. The stabilisation function for the euro area remains essential and therefore Mr. Le Maire advocates improving countercyclical stabilisation function as it is seen as the best response to a shock. The majority of the Eurozone countries and financial institutions are in favour of such a move. Those opposing it are not the majority. 

There is still the need to find a consensus on this subject.

Furthermore, Bruno Le Maire supports the idea of a sovereign Europe regarding its approach to international relations, with the euro as a sovereign currency, to get rid of the dollar supremacy which gives US government diplomacy a constraining feature (Iran sanctions). Moreover, the euro has to reduce its exchange rates exposure, while it is dominated by the US dollar in its importance both in international payments and in international reserves worldwide.

To do so, there is a need of financial harmonisation (e.g.: on tax issues) and social convergence for a deeper integration with the Eurozone at the heart of the European construction.

The French Minister also mentioned the competition issue with China and the United States with the need to make changes in the competition policy.

For the French Minister, the best option is to have a Eurozone budget based on national decisions. He also prefers to build on a first compromise rather than accepting agreements only based on the ideal criterions. The main objective is more convergence and solidarity between members of Eurozone.

To conclude, Bruno Le Maire requests a strong Eurozone to face crises and to put the euro at the same level as the dollar. To do it, he explains that a Eurozone budget without a stabilisation function would not be efficient.

He also underlines the necessity to stick to the European spirit of compromise to avoid the risk of having new gaps between member states as nationalisms are growing everywhere in Europe. 

He ends up saying that taking into account the different situations and public finances of each nation is primordial.

Lucie Cazat, Laurie Crayssac, Geoffrey Lanau

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