French central bank governor François Villeroy de Galhau backed on Thursday a European Commission proposal to create a euro zone stabilisation fund and later a proper budget, financed through borrowing and managed by a finance minister for the euro zone.
The Commission said on Wednesday the euro zone might need to issue collective debt and run a joint budget, among ideas for deeper European Union integration around the single currency after Britain leaves the bloc in 2019.
But Germany said it opposed any plans for the EU to issue collective debt. The centre-right political group in the European Parliament said governments should first start observing existing EU rules before deepening cooperation.
Villeroy de Galhau told the Brussels Economic Forum in a speech that the euro zone should start with a stabilisation fund, generated through borrowing and worth 1-2 percent of euro zone GDP. The fund would support, via loans, counter-cyclical policies of governments faced with asymmetric economic shocks.
To succeed with the fund, the euro zone would also have to create a finance minister, who would be both a member of the European Commission and the chairman of euro zone finance ministers at the same time.
He would have to be accountable to the European Parliament and supported by a European treasury, based on the expertise of European Commission staff and on an independent advisory Economic Policy Council. The minister would also represent the euro zone internationally.
Villeroy de Galhau said that in the longer term, as mutual trust between the euro zone’s countries increased, it could create as a last step a genuine euro area budget, led by the finance minister.
“However, in no way is this euro area budget to be confused with a one-way ‘transfer union’ – and here I understand the German fears,” Villeroy de Galhau said, using Germany’s pejorative word for governments in rich EU countries granting taxpayer money to poorer EU states.
“It should potentially benefit all – not only the weaker – euro area countries, and would be rooted in increased economic convergence,” he said.
The euro area budget would be used to finance certain European public goods such as digital technology, transition to other forms of energy or the integration of refugees.
It could also include a European-wide unemployment insurance scheme – another idea mentioned in the Commission paper.
“To be effective, it would need to be able to directly issue common debt – for the future – and/or raise taxes,” Villeroy de Galhau said, noting that it would be a “quantum leap” in the nature of the EU.
He further said that because of the lack of coordination of policies among euro zone governments, the 19-country bloc was growing slower than it could.
“The opportunity cost of not sufficiently coordinating our fiscal policies in the aftermath of the crisis may have amounted to 1 to 2 GDP points in the euro area,” Villeroy de Galhau said.
“Moreover, taken together, deficiencies in the coordination of both our fiscal and structural policies may have cost between 2 and 3 GDP points between 2011 and 2013.”
Source: Reuters (Reporting By Jan Strupczewski; editing by Philip Blenkinsop/Mark Heinrich)