Europe

Tuesday, June 26, 2012 - 05:37

Text Of Van Rompuy Report On Vision For Future Of EMU -1


BRUSSELS (MNI) - Below is the verbatim text of a report by EU Council President Herman Van Rompuy on a "vision" for the future of the Eurozone, including steps towards a banking and fiscal union.

The report, created in collaboration with the presidents of the European Commission, the European Central Bank and the Eurogroup, was delivered to EU heads of state and government ahead of their summit meeting later this week:

"It is my pleasure to hereby transmit to you the report which I prepared in close cooperation with the Presidents of the Commission, the Eurogroup and the European Central Bank.

This report sets out a vision for the future of the Economic and Monetary Union and how it can best contribute to growth, jobs and stability. The report proposes to move, over the next decade, towards a stronger EMU architecture, based on integrated frameworks for the financial sector, for budgetary matters and for economic policy. All these elements should be buttressed by strengthened democratic legitimacy and accountability.

This report is not meant to be a final blueprint: it identifies the building blocks and suggests a working method. I do however expect to reach a common understanding amongst us on the way forward for the EMU at our meeting at the end of the week. The current situation requires careful consideration of future work that will be necessary over the medium to long term. I am prepared to continue working, together with the Presidents of the Commission, the Eurogroup and the European Central Bank, to submit to the December 2012 European Council detailed proposals for a stage-based process towards a genuine Economic and Monetary Union, closely associating the Member States all along.

I am looking forward to our discussions on Thursday evening and Friday.

I. CONSOLIDATING THE ECONOMIC AND MONETARY UNION

The economic and monetary union (EMU) was established to bring prosperity and stability across Europe. It is a cornerstone of the European Union. Today the EMU is facing a fundamental challenge. It needs to be strengthened to ensure economic and social welfare.

This report, prepared by the President of the European Council in collaboration with the President of the Commission, the President of the Eurogroup and the President of the European Central Bank, aims at developing a vision for the EMU to ensure stability and sustained prosperity. It does so by proposing a strong and stable architecture in the financial, fiscal, economic and political domains, underpinning the jobs and growth strategy.

CHALLENGES

An effective vision has to confront the long-term challenges that the EMU faces. The euro area is diverse and policy-making at the national level is the most effective method for many economic decisions. Yet, national policies cannot be decided in isolation if their effects quickly propagate to the euro area as a whole. Therefore, such national policies must reflect fully the realities of being in a monetary union. Maintaining an appropriate level of competitiveness, coordination and convergence to ensure sustainable growth without large imbalances is essential. This should allow for the appropriate policy mix with the single monetary policy in pursuit of price stability.

But to ensure stability and growth in the euro area, Member States have to act and coordinate according to common rules. There have to be ways on ensuring compliance when there are negative effects on other EMU members. This is necessary to guarantee the minimum level of convergence required for the EMU to function effectively.

Overall, closer EMU integration will require a stronger democratic basis and broad support from citizens. For this reason, it is essential that already the process towards realising this vision is based on wide consultation and participation. Integration and legitimacy have to advance in parallel.

The vision for the future of EMU governance laid out in this report focuses on the euro area Member States as they are qualitatively distinct by virtue of sharing a currency. Nevertheless, the process towards deeper economic and monetary union should be characterised by openness and transparency and be in full compatibility with the single market in all aspects.

VISION

The report proposes a vision for a stable and prosperous EMU based on four essential building blocks:

a.) An integrated financial framework to ensure financial stability in particular in the euro area and minimise the cost of bank failures to European citizens. Such a framework elevates responsibility for supervision to the European level, and provides for common mechanisms to resolve banks and guarantee customer deposits.

b.) 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. This framework could include also different forms of fiscal solidarity.

c.) 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.

d.) Ensuring the necessary democratic legitimacy and accountability of decision-making within the EMU, based on the joint exercise of sovereignty for common policies and solidarity.

These four building blocks offer a coherent and complete architecture that will have to be put in place over the next decade. All four elements are necessary for long-term stability and prosperity in the EMU and will require a lot of further work, including possible changes to the EU treaties at some point in time.

II. KEY BUILDING BLOCKS

1. An integrated financial framework

The financial crisis has revealed structural shortcomings in the institutional framework for financial stability. Addressing these shortcomings is particularly important for the euro area given the deep interdependences resulting from the single currency. However, this needs to be done whilst preserving the unity and integrity of the single market in the field of financial services. Therefore, an integrated financial framework should cover all EU Member States, whilst allowing for specific differentiations between euro and non-euro area Member States on certain parts of the new framework that are preponderantly linked to the functioning of the monetary union and the stability of the euro area rather than to the single market.

Building on the single rulebook, an integrated financial framework should have two central elements: single European banking supervision and a common deposit insurance and resolution framework."

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