The Proposed Reform of the European Stability Mechanism Must Be Postponed

Shahin Vallée (German Council on Foreign Relations), Jérémie Cohen-Setton (PIIE), Paul De Grauwe (London School of Economics and Political Science) and Sebastian Dullien (Institut für Makroökonomie und Konjunkturforschung)

 
Eurozone finance ministers reached a preliminary agreement on a reform of the European Stability Mechanism in June but failed to conclude it last week. The reform is now set to be discussed during the European Council meeting on December 12-13. Shahin Vallée, Jérémie Cohen-Setton, Paul De Grauwe and Sebastian Dullien write that the proposal should not be endorsed in its current form. They argue it would represent a missed opportunity to secure a broader and more ambitious reform package.

 
At the December European Council, EU leaders will be asked to endorse a reform of the European Stability Mechanism (ESM). They should refuse to do so. Closing the ESM negotiations now would remove an important element from a better potential reform package. Indeed, the reform is highly imperfect and imbalanced, and the issue of euro area reform deserves a broader and more ambitious agenda.

The ESM reform has been under negotiation for three years and has had three important objectives. First, it aims to bring the ESM under community law so as to reform its governance, reduce the scope for potential vetoes by national governments, and increase the accountability of its decision-making in relation to the European Parliament. Second, it is intended to enhance the ability of the ESM to act pre-emptively and safeguard financial stability through precautionary instruments, improve the functioning of the ESM in programmes, and clarify the framework for debt sustainability. Finally, it seeks to expand the role of the ESM so that it can play the role of a backstop to the single resolution fund (SRF).

European finance ministers agreed to a compromise in June this year and while they didn’t conclude this agreement last week, they are aiming to finalise the remaining details in the coming months, unless the European Council mandates them to take a step back. Yet the reform agreed by the Eurogroup falls far short of the initial objectives and risks undermining a future possible deal.

Συνέχεια ανάγνωσης  εδώ

Πηγή: www.piie.com