Designing a Genuine EMU, which ‘Unions’ for EU and Eurozone?

Abstract

Since the summer of 2012, the European Council began to focus on a “genuine EMU”. The initial ‘framing’ for the wider public suggested to design and pursue four ‘unions’. So many ‘unions’ are neither necessary nor desirable―only some are and their design matters a lot.
There is a deep ambiguity in Europe about a ‘genuine EMU’. On the one hand, there is too little recognition of the transformation of EMU, simply due to low growth and depressive unemployment rates. Most of all, this is true at the grassroots level because low growth and unemployment matter far more for them. On the other hand, the many changes already introduced in the budgetary and institutional ‘acquis’, the progress on the banking union (including some ‘fiscal capacity’ at EU level for bank resolution) and the amazing evolution of the tasks and influence of the ECB have not fully removed doubts about the sufficiency of the accomplishments. These doubts concern the shifts of economic powers, the tendency to go ‘intergovernmental’ and democratic legitimacy.
Progress has surely been made and it is impressive. Despite the Great recession, the single market―the foundation for EMU―has further deepened. But precisely in the financial internal market, a severe setback has occurred and it is crucial that this setback be reversed soon. The fiscal union signifies considerable progress in terms of budgetary disciplines and a breakthrough with respect to fiscal capacity for bank resolution powers combined with ‘bail-in’. The banking union is progressing steadily with respect to better supervision (rules and centralisation), EU level resolution powers and funding (again, based on bail-in first). But some turbulence might be expected when the ECB tests (on the assets quality review and later stress tests) find some (big) banks that are technically insolvent.
What about the parade of other ‘unions’-economic union, competitiveness union, social union and political union? The macro-economic imbalances procedure (MIP) and possibly the ESRB have overcome the pre-crisis disregard of macro competitiveness. The three components of ‘economic union’ (single market, economic policy coordination and budgetary disciplines) have all been strengthened. The last two ‘unions’, on the other hand, would imply a fundamental change in the conferral of powers to the EU/Eurozone, with drastic long-run implications. Hence, neither a social nor a political union worthy of the name will be pursued.
Yet, political legitimacy matters, both with national parliaments and the grassroots. National parliaments will have to play a larger role. But the BREXIT debate shows a complementary route for the grassroots: it does confront the grassroots with facts and the euro-sceptics with severe criticism about their highly biased framing of the EU or the Eurozone. If such firm debates at grassroots level do not emerge in other EU countries, the lack of political legitimacy―here, about the euro and EMU-would render the process of completing the ‘genuine EMU’ much more difficult.