On May 31st 2017 the European Commission (EC) published the reflection paper on the Deepening of the Economic and Monetary Union (EMU). In its long-awaited paper the Commission proposes a bold set of measures that is aimed to stimulate discussion across the Union on the future of the EU and the Eurozone in particular. For these discussions the Commission argues that “[i]t is time to put pragmatism before dogma, to put bridge-building before individual mistrust”. With the proposed measures the Commission wants to complete the EMU by 2025. But are the proposals as pragmatic as the Commission proclaims or is there an underlying dogma to be discovered? And, most importantly, is there sufficient political will across the EU for such bridge-building?
The arguments as well as timing for EMU reform are evident. There is insufficient convergence on key macroeconomic indicators in the Eurozone. Public finances (debts and deficits) remain unhealthy in a great number Member States. The financial link between governments and banks as well as the number of non-performing loans continue to pose severe risks. And, while progress has been made in recent years, the myriad of (ad-hoc) arrangements and procedures has resulted in complex EMU governance structures that, according to the Commission, lead to non-transparent and suboptimal results.
Reform is necessary, but as the Commission acknowledges: “[t]here is not one, single answer”. Nevertheless, the EC argues for a common vision on what needs to be done. Considering the vast disagreements on the appropriate economic approach, a common vision among the Member States seems far-fetched. Despite this, the Commission is actively pursuing a significant deepening of the EMU, reaffirming that “except for Denmark, all EU Member States are expected to eventually join the euro”. In presenting their vision they seem to be ruling out the scenarios “carrying on”, “nothing but the Single Market” and “those who want to do more” as outlined in the recent white paper on the future of Europe. The Commission is clear: it wants to do more together.
Why have the previous measures, taken at the height of the crisis, not been sufficient and why would the Commission’s proposals now make any difference? The main argument presented by the Commission, and supported by a significant number of literature, is that the current structures of the EMU were established in crisis-mode and on an ad-hoc basis, meaning they are unfinished. Where the Monetary Union of the EMU has been fully integrated the Economic Union remains underdeveloped, which is one of the reasons why the financial-economic crisis became so severe.
Similar to the Five President’s report of 2015, the EC identifies three areas that need to be completed and/or established in order for the EMU to function effectively. The completion of (1) the Economic and Fiscal Union would involve new convergence standards, a central stabilization mechanism through (amongst others) a European Monetary Fund and conditionality via the EU budget, while simplifying national fiscal rules under the Stability and Growth Pact. The completion of (2) the Financial Union would prevent risks in the financial sector in Europe and cut the links between the banks and their sovereigns, avoiding expensive bank bailouts. The Commission plans to improve these pillars of the EMU under the umbrella of (3) a more (democratically) accountable governance structure with a central role for the Commission. Once these reforms are implemented, the Commission argues, the stability of the Euro would be safeguarded and additional tools would be available to stimulate national reforms.
While the Commission presents the reflection paper as a toolbox, the policy tools appear to have one underlying dogma in common: they increase EU intervention through use of funds as well as public incentives and so leave less room for traditional market discipline. Market discipline remains present due to national debt issuance, but the proposed governance tools and structures might induce (even) more strategic behaviour by national politicians in order to avoid or gain support for politically painful reforms or budgetary expenditures. National governments could, hypothetically, enter into a two-level game by 1) defying EU institutions and rules in order to gain public support from their national constituency and 2) plead for financial and administrative aid from EU funds in order to successfully reform. This would lead to political deal-making that over time could, however “complete” the EMU may be, seriously undermine the credibility of E(M)U and Member State institutions. Markets, on the other hand, do not engage in political deal-making and hence are not compromising.
The Commission assumes and argues for strong political will from MS and claims momentum, but strong disagreements on the future of the EMU are not likely to disappear. For example, why would a German citizen with two mini-jobs feel the need to be solidary with citizens of Member States that have failed to introduce difficult structural reforms to keep their labour market competitive? Naturally then, the German government is not too enthusiastic about the plans because the schemes that the Commission is proposing could lead to a transfer union implying permanent transfers from rich to poor countries. In the Netherlands similar considerations exist. Their Ordoliberal dogma versus the Keynesian dogma of the Commission, supported by countries such as Italy and France, will make it significantly harder to build bridges in the near future.
The fundamental problem, which the EC barely addresses, is that the Member States need to reform and converge towards each other, preferably at a higher level of economic growth. While market discipline is far from perfect, there is no clear evidence to support the thesis that the Commission is better capable of reining in national governments. Therefore, the proposals by the Commission do not offer a more complete version of the EMU, but rather a different version of the EMU. A version where it is not the markets disciplining national governments but EU institutions, bringing along more risks for European taxpayers and potentially undermine trust in the EU in the long run. The Commission may promote pragmatism before dogma, but by arguing that this is a completion of the EMU the Commission can be accused of being dogmatic too.
 EC Reflection Paper on the Deepening of the EMU, p. 29.
 EC Reflection Paper on the Deepening of the EMU, p. 7.
 E.g. De Grauwe, P. (2014). Economics of Monetary Union. Oxford University Press, Stiglitz, J. (2016). The euro: How a common currency threatens the future of Europe. WW Norton & Company.
 Mini-jobs are part-time jobs with limited social rights, introduced under Hartz IV reforms in 2002. http://www.bmas.de/EN/Our-Topics/Social-Security/450-euro-mini-jobs-marginal-employment.html