All eyes on blueprint for the euro’s future

Van Rompuy report to be discussed by EU leaders.

Herman Van Rompuy’s report on the future of the eurozone will form the basis of discussions by European Union leaders at the two-day summit. The president of the European Council drew up the report in collaboration with José Manuel Barroso, the president of the European Commission, Mario Draghi, the president of the European Central Bank, and Jean-Claude Junker, the prime minister of Luxembourg, who chairs meetings of eurozone finance ministers.

Van Rompuy said that the report is not meant to be a final blueprint, but merely “identifies the building blocks”. He said he wanted to reach a “common understanding” at this week’s summit and would present more detailed proposals at the European Council on 13-14 December, with an interim report at the summit on 18-19 October.

The report calls for an “integrated financial framework” covering all EU member states, not just the eurozone, allowing “specific differentiations” between the eurozone and non-eurozone countries. The framework will have two main elements: single European banking supervision, and a common framework for deposit insurance and resolution.

Van Rompuy calls for a single European banking supervision system “as soon as possible”.

The deposit insurance scheme and the resolution fund would be set up under the control of a common resolution authority. The eurozone’s €500 billion rescue fund, the European Stability Mechanism (ESM), would act as the authority’s financial backstop.

Van Rompuy demands a “qualitative move towards a fiscal union”, calling for a “greater pooling of decision-making on budgets”.

He says that upper limits on governments’ annual budget balances and on their debt levels could be agreed in common. “Under these rules, the issuance of government debt beyond the level agreed in common would have to be justified and receive prior approval,” he says.

Eurobonds

The report does not immediately go as far as demanding Eurobonds – the sharing of debt. However, it says that the issuance of common debt “could be explored…as long as a robust framework for budgetary discipline and competitiveness is in place to avoid moral hazard”.

He raises the prospect of alternatives to fully fledged Eurobonds, including “the pooling of some short-term funding instruments on a limited and conditional basis, or the gradual roll-over into a redemption fund”.

A eurozone treasury would be set up, Van Rompuy says, capable of managing “economic interdependences”.

The report calls for a convergence of member states’ economic policies, particularly in areas such as labour mobility and tax co-ordination.

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