During 2018 the debate on the future of the EMU has left the drawing board of academics and policy advisors and has entered (albeit at the usual very slow pace) the realm of political discussions. The Franco-German Meseberg declaration of June 2018 set the stage for the adoption of a Euro Area common budget funded with permanent tax resources, the completion of the banking union through the ESM backstop to the Single Resolution Fund, and steps forward in the setup of a European Deposit Insurance Scheme (EDIS).
The Meseberg declaration received mixed opinions, and it produced some limited steps forward in the December 2018 Euro Summit. On that occasion, Member States approved the terms of reference of the common backstop to the Single Resolution Fund (SRF) by the ESM, together with the main guidelines of the ensuing ESM reform, which will be achieved through amendments to the ESM Treaty to be tabled by June 2019. The agreement also specified how the backstop will be operationalized by the end of the SRF transition period (2023), and possibly anticipated - provided that sufficient progress has been made in risk reduction - an assessment which will take place in 2020. No progress has been achieved on the front of a Euro Area (EA) common budget “for convergence and competitiveness”, whose discussion has now been merged with the one on the Multi-annual Financial Framework 2021-2027, and hence subject to all sorts of political compromises. It is also telling that in the 2018 Euro Summit statement there was no mention of the EDIS. In June 2019, it is acknowledged that “further technical work is still needed”.
Hence, after several years of discussion, we are not very far from square one. On the fiscal side, there seems to be agreement on the principle that the fulfilling of existing rules on the sustainability of public finances by individual Member States is a necessary but not sufficient condition for a ‘complete’ monetary union, as the latter also requires fiscal instruments in the form of some management of aggregate demand across the Euro Area. There is the shared interest however in supporting the weak economic cycle with fiscal expenses which are becoming more green and sustainable. But little progress has been achieved on this front so far. Similarly, on the front of completing the EU banking union, the size of the ESM backstop is limited to the amount of money available in the Single Resolution Fund. Moreover, as mentioned, there is still no agreement on the setup of an EDIS scheme.