EU prepares for eurozone 2.0

Deutsche Welle, 14 December 2012

The EU has approved a roadmap for further reforms, though concrete decisions are not expected this week. The way toward a renewed eurozone has been prepared, but a key question remains: who will pay in the end?

Over dinner, the leaders of the European Union discussed the lessons they have learned from the eurozone's debt crisis, and how they want to shape the EU in the future. A clear outcome has yet to present itself, though the presidents of the European Council, the eurozone, the EU Commission and the European Central Bank have been working on a 15-page paper outlining their plans for months.

Under the heading, "Towards a Genuine Economic and Monetary Union," European Council President Herman Van Rompuy has collected reform ideas and divided them into three phases. Van Rompuy wants to achieve a full and complete banking union and a better coordination of economic policies, and contractually oblige member states to structural reform. In the end, he expects common borrowing and repayment of public debt in the eurozone.

In addition, a "fiscal capacity" would be launched, also known as a sort of eurozone budget. All eurozone states would be obliged to contribute to this common pot, which would help them deal with economic shocks and downturns.

Monetary union, reloaded?

Rehn thinks a new version of the
current eurozone is necessary

Olli Rehn, the EU commissioner for economic and monetary affairs, told DW in Brussels that a "monetary union 2.0," that is, a new version of the current eurozone, should be created.

"It should be a stability union, with enhanced economic policy management," he said. "This would prevent member states from living beyond their means. The EU should intervene with preventive measures when economic imbalances become apparent." The new monetary union "should have a much stronger economic policy pillar, as befits an economic union," he added.

In other words, the birth defects of the eurozone should be rectified, as Van Rompuy writes in his reform paper.

Joint debt remains controversial

Many leaders of the 17 eurozone countries were able to discover positive features in Van Rompuy's paper. But Britain, Denmark and Sweden, countries without the euro currency, have remained skeptical. Many of the individual steps are proving controversial.

German Chancellor Angela Merkel has rejected any form of joint borrowing and further steps towards a union of shared liability. For the moment, she wants a roadmap for further discussions and reforms, while holding off on any concrete steps.

Other countries like Italy, Spain and France are calling for more solidarity and growth. French President Francois Hollande, for example, has strongly suggested disregarding investments when it comes to the calculation of new indebtedness. Solvent eurozone members, meanwhile, still in possession of their highest triple-A credit ratings, have rejected this idea, seeing it as an invitation to further debt.

Pressure to decide subsides

Austrian Chancellor Werner Faymann dampened expectations at the pre-Christmas summit, expectations which were still being stoked in the summer by EU leaders. At that time, even the German chancellor had said that the December summit would determine the future shape of the eurozone.

EU leaders have yet to decide "where, when and how" the debt of member
states will be communalized

Now, according to Faymann, is the time for discussion. "I did not expect that we would agree today on the shape of the European Union for the next 20 years," he said. "But a policy discussion is also important, about how we can better and more closely work together."

Guy Verhofstadt, the former Belgian prime minister and current leader of the liberal faction in the European Parliament, has participated in many EU summits and knows how the discussions play out behind closed doors. "Interest rates on government bonds are now a little less than they were a few months ago - meaning that the pressure on political leaders has subsided," Verhofstadt told DW. "They now think they have more time to solve their problems."

He believes this is a mistake: "The crisis is not over. The crisis is hitting us all very hard, economically, socially and financially," he said.

'The key point is the money'

In fact, any discussions among the leaders of the euro countries always come back to the same question, said Martin Schulz, the president of the European Parliament, who also took part in the discussions.

"It has been the crux of the debate for months: where, when and how will the debt and burdens of the member states be communalized, if at all?," he told reporters in Brussels. "I think that's the core point that we've been circling for some time." An answer to this crucial question is still pending.

Verhofstadt fears that until the German parliamentary election next September, little will be decided. "The national election calendars still dominate the European agenda," he said. Even the Italian election early in 2013 could have an impact on the timetable for reform in the eurozone.

Berlusconi in Brussels

Berlusconi's possible comeback
 was not well received by the markets

Most of the leaders meeting in Brussels on Thursday (13.12.2012) were relieved to note that the former Italian prime minister, Silvio Berlusconi, is apparently no longer planning to run in his country's next election. Berlusconi had travelled to the conservative party leaders meeting in the Belgian capital and suggested Thursday that current premier Mario Monti should run for the conservative camp.

Monti, who as an independent has led Italy's reform cabinet for the last year and replaced Berlusconi, has not decided whether he wants to enter the campaign. If he declines, Berlusconi could yet attempt a comeback. The mere announcement of Berlusconi's possible candidacy earlier this week upset the financial markets, resulting in increased interest rates for Italian government bonds.

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