A large number of European Union finance ministers believe some form of euro zone budget, possibly including specific taxes, would be a good way to stabilise the single currency area Eurogroup head Jeroen Dijsselbloem said on Monday. All European Union finance ministers except Britain held talks on Monday on how to integrate euro zone economies more deeply over the coming years.
More discussions will follow at a meeting on December 4 before Dijsselbloem, who leads euro zone finance ministers, presents some conclusions to EU leaders at a summit in mid-December that is to set goals for euro zone reforms to be worked out in the first six months of 2018.
A euro zone budget — or fiscal capacity as it is called among ministers — was among the topics discussed on Monday, along with reducing and sharing risks in the banking sector to eventually create a European deposit insurance scheme for all savers.
“Quite a large number of ministers feel that to complement our toolkit with a fiscal capacity as a stabilisation tool would be useful,” Dijsselbloem told a news conference after the ministers’ deliberations.
There were no conclusions to the discussion on the budget nor were there any numbers mentioned for its size, European Commissioner for Economic and Financial Affairs Pierre Moscovici told the news conference, but views differ widely from hundreds of billions of euros, to no budget at all.
Ideas for financing such a fiscal capacity range from special taxes, for instance on digital commerce, to country contributions or sharing national unemployment insurance fees.
“It was a very controversial debate, (there were) many ideas and the question is where can one find common ground,” the head of the euro zone bailout fund Klaus Regling said.
He said that if ministers chose to create a pool of money for macroeconomic stabilisation, there would be no need for an annually financed budget.
“It would be a question of generating a pot of money either through rainy day funds or contributions from national unemployment schemes,” he said.
“Once we have a pot of money, it would not be used every year, it would be used when there is a problem in order to prevent a bigger crisis from developing. I would be a fund that would be replenished, a revolving fund,” he said.
Dijsselbloem also said that the 27 EU finance ministers agreed that EU fiscal rules — the Stability and Growth Pact — have become so complex and prone to political interpretation that they are no longer effective.
There was some support from the ministers therefore for the introduction of some form of market pressure which would force more discipline in fiscal policy.
“(We must) use markets and enable markets be more effective in providing some outside pressure to us,” Dijsselbloem said, noting, however, that markets could not be left completely in charge because they were not always rational and well informed.
This plays into German calls for setting up a sovereign insolvency mechanism, which would force investors to discern more clearly between the risks of lending to different euro zone countries, creating a powerful incentive for fiscal prudence.