20 July 2015

Hollande calls for a Eurozone government

Almost inevitably, the Greek crisis has reignited the debate over the future of Eurozone integration. Whatever happens with Greece – the country’s euro exit is definitely not off the table – it is clear that, at least in terms of rhetoric and intentions, we are likely to witness a renewed push for closer ties among the countries sharing the common currency.

French President François Hollande has used a letter to Journal du Dimanche, in which he pays tribute to former European Commission President Jacques Delors (who turns 90 today), to argue the following:

Europe has let its institutions weaken and the 28 governments struggle to agree to move forward. [National] parliaments remain too far from decisions. And the peoples are being turned away [from Europe] by dint of being bypassed…It is not the excess of Europe that is threatening us, but the lack of it.

French President François Hollande, 19 July 2015

He goes on,

With Jacques Delors, Europe has enlarged – but he had warned us by proposing a deepening with differentiated integrations. Let’s listen to him. The circumstances lead us to speed up. The Eurozone has this week reaffirmed its cohesion over Greece…The European spirit has prevailed. But we can’t remain there. I’ve proposed going back to Jacques Delors’s idea of a Eurozone government, and adding to it a specific [Eurozone] budget as well as a [Eurozone] parliament to ensure its democratic control.

French President François Hollande, 19 July 2015

Hollande concludes,

Sharing a currency is far more than wanting a convergence. It’s a choice that 19 countries have made because it was in their interest. Incidentally, no government has taken the responsibility to get out of it during fifteen years. This choice calls for a reinforced organisation and, with the countries that will decide to do so, an avant-garde. France is ready.

French President François Hollande, 19 July 2015

In many ways, Hollande is just reiterating a classic French vision of EU integration – a ‘two-speed Europe’ with the single currency bloc at its core. Indeed, the ideas floated by the French President – a Eurozone government with a dedicated budget, and even a separate Eurozone parliament – would certainly require EU Treaty change, something France has been keen to avoid in recent years.

In an interview published by Der Spiegel over the weekend, German Finance Minister Wolfgang Schäuble has also re-hashed the idea of a single finance minister for the Eurozone, saying,

I’m also in favour of a Eurozone finance minister, but to install one, the European treaties must be amended first.

German Finance Minister Wolfgang Schäuble, 17 July 2015

It is far from obvious how many Eurozone countries would actually be prepared for such a big leap forward – especially considering how the recent Greek negotiations have exacerbated the North/South divide.

But the fact that the French President and the German Finance Minister are talking openly about their grand designs for the Eurozone – just a week after the single currency faced its toughest test – is indeed significant. Even more so if one compares their statements with the largely underwhelming proposals set out in the Five Presidents’ Report on the future of Eurozone integration published at the end of last month.

What about those EU members outside the Eurozone?

Clearly, the kind of changes Hollande and Schäuble have mooted would have a profound effect on the wider EU.

Interestingly, in a recent op-ed for Dagens Nyheter entitled, “Sweden should not become a second-class member of the EU”, Swedish Finance Minister Magdalena Andersson warned,

There is a risk that [further Eurozone integration] could lead to a weaker position in the EU and reduced influence over policy formulation for non-euro countries. Ultimately, this may also affect the design of the EU single market which is so important for Sweden.

Swedish Finance Minister Magdalena Andersson, 17 July 2015

This encapsulates one of the central challenges facing the EU: how to square much closer political and economic union in the Eurozone with wider single market membership.

This is an issue which has often been discussed as hypothetical. However, we could soon be entering a period in which this question will need to be resolved. The recent dispute over the use of the EFSM bailout fund – backed by all 28 EU member states – to provide bridge financing to Greece is a perfect illustration of what may lie ahead.