Analytics, Banks, Employment, EU – Baltic States, Financial Services, Legislation

This European Council has delivered a set of measures which should strengthen confidence in Europe's financial stability and pave the way for the substantial work which is still needed.

It has done this at a very difficult and defining moment for Europe as the sense of urgency was very high throughout the member states even if different governments were under pressure for different reasons. And as the causes of this pressure differ, so do preferences on the potential solutions.

Despite those difficulties the European Council (and later on the euro zone summit) have for the first time tackled all the elements of a comprehensive response in one meeting by agreeing on measures to boost growth and jobs, by setting out the next steps for further deepening of Economic and Monetary Union and by deciding on short term stabilisation measures.

Compact for Growth and Jobs

The Commission has always argued that consolidation must be accompanied by sustainable growth created by structural reforms combined with targeted investment. It was therefore important that Heads of State and Government decided on the Compact for Growth and Jobs.

This compact is based generally on proposals put forward by the Commission and on ideas discussed in the EP since 2011 or even some years before. The compact turns intentions into concrete action with financing commitments, and sets out the levers for mobilising policies and funds – both at the European level and at the national level.

On the EU level, some elements that the Commission has been advocating are now becoming reality: namely boosting the lending capacity of the European Investment Bank. Quite remarkable, that when these ideas were presented in the State of the Union address (September 2011), some member states were opposed to it; now they have agreed.

Launching the first phase of European bonds’ issue, a proposal of the Commission that initially received great skepticism, but was now approved. And redirecting a certain amount of structural funds towards supporting SMEs and young unemployed people. Indeed, the unemployment situation in Europe is the most dramatic and urgent issue which should be addressed too.

Following the Single Market Act the Commission will bring forward a package of measures on digital agenda  in the autumn, and for the so-called “Single Market Act- 2”.  

Legislation needs to be proposed, adopted and implemented; actions will be needed not from one institution but from the whole institutional system: the Commission, Parliament and Council, need to work together, and work together fast.

These issues were recognised during the summit (28-29 June 2012) and the conclusions acknowledged the need to improve cooperation to ensure the timely implementation of the growth compact. This will hopefully allow the EU to move towards an inter-institutional agreement to prioritize and speed up the relevant pieces of legislation.

The European Council also generally endorsed the Country-Specific Recommendations effectively closing the 2012 European Semester.

“This year the semester has come of age with real multilateral discussion. It is only natural that on some issues, there was a vigorous discussion – even when the evidence of loss of competitiveness inside the Single Market and internationally makes a clear case for action in the very interest of our citizens and their jobs”, argued the Commission’s President. The debate shows that the exercise is not just a technical and economic one –it is truly political.

Through the debate in the European Council, the awareness among Heads of State and Government that we cannot separate the debate on growth from the debate on the EU budget has also increased. The EU budget is the EU’s most important instrument for targeted investment and is an indispensable tool for growth and jobs in Europe. It would indeed be a strong political and economic signal if the agreement on MFF could be reached by the end of 2012.

In this regard, the development of the Financial Transaction Tax is an important issue: the Commission’s conviction is that moving to enhanced cooperation on the FTT does not mean that the debate on the FTT as an element of a new own resources mix is closed, on the contrary.

Looking to the future, this European Council was able to define the direction towards the creation of a genuine economic and monetary union: this is an undertaking that has to be built step by step over several years. This European Council has now asked for a specific and time-bound road map to be worked out by the end of the year. And it has endorsed this aspiration collectively, even if it is clear that not all member states will want to be part of the ultimate outcome of the process. A stable Euro is in the interest of the Union as a whole; the process must therefore combine the necessary deepening of the Euro area and its openness towards the member states who want to join the Euro with the necessary safeguards for those who have an opt-out.

Banking Union

The Commission's view is to start making the genuine EMU a reality as quickly as possible while particularly exploring all that can be done on the basis of the existing treaties as a matter of urgency.

In support of this, Heads of State and Government gave a clear commitment to the realization of what the Commission has been calling a "banking union", the idea that was explained already in European Semester Communication.

The "banking union" will be designed to fully address the structural shortcomings in the institutional framework for financial stability. As the aforementioned report puts it, addressing these shortcomings is particularly important for the Euro area given the deep interdependences resulting from the single currency. This must of course be done and preserve the unity and integrity of the Single Market in the field of financial services, whilst allowing for specific differentiations between Euro and non Euro area member states on the parts of the framework that are preponderantly linked to the functioning of the EMU and the stability of the euro area rather than to the Single Market.

These differentiations can of course not go just in one way; because of its importance, the member states must respect the opt-outs from the Euro area. But they must also respect the fact that other member states not yet in the Euro will want to join as soon as they meet the conditions.

The European Council confirmed that the European Commission will bring forward proposals under Article 127 regarding the conferral upon the European Central Bank of banking supervision tasks. Strengthening banking supervision in the EU becomes a central element of the consensus around this agenda and a banking union is an indispensable step in the right direction.

“Enlarged” Economic and Monetary Union

But a genuine EMU must go further; the EU needs at the same time a fiscal union, a reinforced economic union, and take steps towards a political union. This is the logical consequence of the need for deeper integration to match European growing interdependence and need for financial stability. The Council recognised that greater solidarity requires greater responsibility; it also requires more democratic legitimacy and political accountability.

The Community method and the role and tasks of the EU institutions must be the starting point for all further improvements in this respect.

The Council addressed also medium-, long-term and short-term issues; here, the Euro area statement takes great significance. The importance of this statement having been endorsed by all 27 member states; this is a strong message and has been perceived as such by the outside world.

The first measure is to allow for the direct recapitalisation of banks by the ESM under appropriate conditions once a single supervisory mechanism for the Euro Area is in place. The Commission's intention to swiftly adopt a legislative proposal on the basis of Article 127 is an important instrument in this regard.

Secondly, the Council has reached an agreement to waive the seniority of future loans for Spain's financial sector recapitalisation under the ESM.

Thirdly, the Council agreed on the possibility of the flexible and effective use of all instruments for all member states respecting their obligations under the European semester: e.g. the Country specific Recommendations, the rules under the Stability and Growth Pact and the Macro-economic Imbalances Procedure. These decisions represent the result of the recognition of the need for solidarity with responsibility.

The Commission will work without delay on implementing them over the coming weeks and months.

“After the European Council, and provided that all member states will stick to the commitments that were made in full, we will be better equipped to face the serious challenges ahead. However, let us recall that all of this is work in progress. There is no quick fix and magic fix, and there will be no magic solutions. The magnitude of the agenda of the European Council illustrates the magnitude of the work that is still ahead”, concluded José Manuel Durão Barroso. 

Reference:  SPEECH/12/518; 3 July 2012

Speech by José Manuel Durão Barroso, President of the European Commission in the European Parliament.