The European Commission has no intention to scale back its ambitious plans for an ever-closer union in response to Britain’s decision to leave the European Union. In fact, the E.U. executive is plowing ahead with plans to deepen political and economic integration among a core group of member states.
The ultimate goal is to complete the construction of a currency and economic union by 2025, European Commission Vice President Valdis Dombrovskis said after meeting with his colleagues in Strasbourg on Tuesday.
At the meeting, the president of the commission, Jean-Claude Juncker, presented a discussion paper that lays out ideas on how Brussels can achieve the goal. Mr. Juncker’s proposals, however, will almost certainly meet with stiff opposition in Berlin.
In the discussion paper, the commission says a financial union should be created by breaking the link between state debt and the financial sector. This can be achieved by bundling the bonds of multiple euro-zone member states into “sovereign bond backed securities.”
Germany has long opposed such securities, known as European Safe Bonds, out of concern that they might result in joint liability for state debt within the euro zone. But Mr. Dombrovskis denies that they would lead to collective liability.
Berlin agrees that it is critical to avoid dangerous co-dependence between states and big banks in the event of a financial crisis. Many large banks have state bonds from their home countries on their balance sheets. As a consequence, the financial sector would be vulnerable if a sovereign debt crisis were to hit.
Germany and other financial hawks, such as the Netherlands, disagree with the commission's approach to resolving this dilemma. Instead of creating European Safe Bonds, they support limiting the sovereign bond portfolio on banks’ balance sheets.
The European Commission is also proposing the creation of a budget for the euro zone. There are two possible concepts, according to Mr. Dombrovskis. One would be to support investment in states facing economic crises. The other would be to create a joint system of unemployment insurance in the euro zone to support the jobless.
Even Mr. Dombrovskis, however, sees a joint unemployment insurance scheme as unrealistic. This would require the alignment of systems in the various member states, which currently vary widely. The chances of achieving that are virtually zero.
The European Commission is standing by the controversial idea of a European economic government. While France has long supported the idea, Germany has traditionally been opposed.
The first step could be to appoint a chairperson to coordinate the euro-zone finance ministers. European Economic Commissioner Pierre Moscovici has proposed making his office the head of the group, but Berlin is opposed.
The European Commission wants to make more concrete proposals for the future of the currency union at its meeting in May, via a “reflection paper.” But little progress is likely to be made this year. Berlin and Paris have no interest in making major reforms of the euro zone until after the German elections in September.
Ruth Berschens heads Handelsblatt's Brussels office, leading coverage of European policy. To contact the author: [email protected]