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Towards a European Monetary Fund

In late 2017, the European Commission established a roadmap for deepening the European Economic and Monetary Union (EMU). The plan represented yet another step towards the economic integration of the EU, during a political year marked by the elections in the Netherlands, France and Germany and the Brexit negotiations with the United Kingdom. One of the most far-reaching proposals is transformation of the current European Stability Mechanism (ESM) into a European Monetary Fund (EMF). The year 2018 opens with the challenge of implementing this proposal.

The European Monetary Fund (EMF) proposed by the European Commission would have the capacity to support the member states of the Eurozone that are facing financial difficulties, in the same manner as the ESM currently does, with a quick adoption of decisions in emergency situations. Also – and this is new – the EMF would act as a lender of the last resort for the Single Resolution Fund, in order to facilitate the orderly resolution of distressed banks.

In addition, the Commission proposes promoting new structural reforms and maintaining investment levels, as well as adopting initiatives to complete the banking union. One of the most noteworthy initiatives is the creation of a Ministry of Economy and Finance in the Eurozone. The new European Minister of Economy and Finance post would strengthen the coordination of fiscal and economic policies within the EU and the Eurozone, and represent Europe in G20 and IMF meetings. Also, the Minister would also hold the positions of vice-president of the European Commission and President of the Eurogroup.

Concrete progress, but without radical changes

These are “concrete and welcome proposals” to deepen the European economic and monetary union, said BBVA executive director José Manuel González-Páramo said during a recent economic forum in Rome.

However, according to BBVA Research’s chief economist for Europe, Miguel Jiménez, “the proposals have failed to satisfy the expectations of Germany and its neighboring countries, which would only accept the new EMF if it is allowed to tighten controls over national budgets, in an independent manner.” In an article published in Spanish financial newspaper Expansion, the economist argues that, despite not being “radical” (as they fail to address the Eurobonds issue or set out a conclusive path towards the completion of the banking union), these proposals are indeed “steps forward” with an ”important symbolic value, and can contribute to restoring trust between the northern and southern European countries.”

All in all, the Committee has delivered on its commitment to establish specific actions regarding the future of the EMU, as agreed in the Five Presidents’ Report of 2015 and the Reflection paper on the future of EU finances in 2017. Everything suggests that the European Commission will develop these initiatives in May 2018, so that the European Parliament and the Council can adopt them in 2019.

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