Appetite for euro reform falters

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Eurozone leaders will propose making only minor changes to the way the EU’s common currency is governed over the next two years in a report to be published on Monday, offering a clear sign that the reformist zeal seen in earlier phases of the eurozone crisis has stalled.

The 24-page report, authored by Jean-Claude Juncker, the European Commission president, with input from the heads of the European Central Bank, European Council and eurogroup of finance ministers, calls for the bedding down of rules and institutions that were created during the crisis until July 2017 before moving on to more ambitious reforms.

“In the short term, we need to set in motion a renewed effort for all to converge towards the best performance and practices in Europe, building upon and further strengthening the current governance framework,” the report recommends.

Only in 2017, the report states, would the European Commission propose more ambitious institutional and legal changes as part of a “stage two” integration effort.

Despite the lack of short-term ambition, officials say that the ongoing crisis in Greece could force a rethink, particularly if Athens crashes out of the eurozone. Senior officials have for several months discussed making a much bolder leap towards integration if Greece exited. This would signal to financial markets that the rest of the eurozone would prevent any other members from leaving.

Among the measures recommended for consideration after July 2017, are several that could be implemented more quickly in the event of a Greek exit. Most probably, this would mean tightening the euro convergence process by setting more legally binding benchmarks for the members. There would be added pressure to maintain these standards because member states would only be able to join a stability mechanism to protect them from financial shocks if they stuck to the new rules.

Jeroen Dijsselbloem, president of the eurogroup, praised Monday’s report for introducing national competitiveness authorities intended to overcome the widely divergent economic norms that have heaped pressure on the internal coherence of the euro. To be introduced from next month, these authorities will build on a model already established in Belgium and the Netherlands.

“Member states need to prepare themselves for global challenges. They have a self interest to ensure their economies are flexible and have sufficient adjustment capacity in an increasingly globalised world,” he said.

The report also envisages the creation of a European Fiscal Board from July. This new body will provide assessments of how budgets measure up against the broader EU fiscal framework.

“Today’s divergence creates fragility for the whole union,” said the report. “We must correct this divergence and embark on a new convergence process.”

The report was instigated by Mario Draghi, the ECB president, who has been urging more ambitious political agreement on turning the eurozone into a more centralised currency area so that capital and labour can flow more freely, as in the US. But Mr Draghi’s hopes have run up against reform fatigue in almost all eurozone capitals, except for Berlin, which has pulled back in its demands for more immediate reforms in the face of political resistance.

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