5 RESPONSIBILITIES OF AN EU FINANCE MINISTER (EU-FM)

Source: Jacques Delors Institute Berlin

Mission: An EU-FM would act as a strong political authority safeguarding the economic and fiscal interests of the euro area as a whole, as opposed to the interests of individual member states.

Competences: The main competences of the EU-FM would be to (i) oversee the coordination of fiscal and economic policies, (ii) enforce rules in case of non-compliance, (iii) lead negotiations in a crisis context, (iv) contribute to buffering regional shocks and (v) represent the euro area in international institutions and fora.

Instruments: The EU-FM would manage a European investment budget to counter-balance asymmetric shocks and to reward reforms. He/she would also chair the European Monetary Fund, an improved version of the European Stability Mechanism.

Institutional ties: The EU-FM would be located at the interface of supranational and intergovernmental politics in the European Union. He/she would be ‘double-hatted’, being simultaneously a member of the Commission and President of the Eurogroup.

Democratic control: The European Council and the President of the Commission would jointly appoint the EU-FM and could force his/her resignation. In addition, a joint committee consisting of delegates from national parliaments and the European Parliament would scrutinise the minister’s spending on investment and exercise direct democratic control over the European Monetary Fund.

Responsibilities

1. Oversee the coordination of fiscal and economic policies. The main task of the EU-FM would be to actively contribute to the coordination of fiscal and economic policies. There is a long list of tools and instruments, in particular the Excessive Deficit Procedure (EDP), the Stability and Growth Pact (SGP), the Macroeconomic Imbalances Procedure (MIP) and the European Semester (ES). In the past, those tools have not been used in a sufficiently pro-active manner and have consequently been unable to provide successful ex-ante coordination of fiscal and economic policies. This deficiency is at least partly due to the fact that the Commissioner in charge did not have enough political weight to call upon the responsibility of euro-area member states. At the same time, the Eurogroup President did not take an active part in the positioning of the European Commission on whether to take a tougher position on non-compliant member states. Merging the positions of EU Commissioner and Eurogroup President would overcome those difficulties and create a strong voice at the level of the euro area, pushing member states to pro-actively avoid the emergence of negative externalities from their policies. At the same time, the EU-FM would have at his/her disposal the full set of sanctions foreseen by the SGP and the MIP , which would allow him/her to back-up the political authority with effective policy tools. Beyond those coordinating tasks, the EU-FM would also report on the euro-area fiscal stance – a concept that has been grossly underemphasized in recent years.
2. Oversee and politically defend the enforcement of rules. Taking up the competences of today’s Commissioner for Economic and Financial Affairs, the EU-FM would not only ensure ex-ante that member states comply with the EU’s rules on public and private imbalances, but also lead the enforcement process in case the rules are breached. Many of the required tools already exist, but there are discussions about how much discretion there should be in the application of the rules. Under the current system, taking that decision is mainly up to the Commission. But the college is not the right body for such a role. Two elements are missing: (i) the democratic element, i.e., a direct participation of elected representatives from the European Parliament and national parliaments, (ii) the political ownership element, i.e., the clear and personal responsibility for enforcing or not enforcing the rules. Indeed political ownership and democratic control mechanisms are today dispersed among different institutions and governance levels. An EU-FM would improve the visibility of ex-ante rule monitoring and ex-post rule-enforcement and thus contribute to the effectiveness of EU economic governance. He/she would take on a leading role in the European Semester, and follow up on country-specific recommendations. He/she  could apply some discretion as allowed by the Treaties, but would carry the political responsibility for the results and would be accountable to a joint chamber composed of members of the European Parliament and members of national parliaments
3. Lead negotiations. Should a euro area member state need to rely on emergency credit from the ESM or a successor institution, the minister would act as an “honest broker” by leading the negotiations about adjustment programmes and monitoring progress. The negotiations with Greece showed that such an actor is needed. When the final deal was negotiated, the key actors were German chancellor Merkel and Greek Prime Minister Tsipras. What was missing, was a strong and unique “European” voice at the table, representing the interest of the euro area as a whole. When euro-area negotiations become purely intergovernmental, the single currency is systematically at risk. The interest of member states is by definition not the interest of the euro area or the European Union as a whole – and neither should it be. The EU-FM would thus become the face of the assistance programmes and would be accountable for their outcomes. The experience so far suggests that this could make him/her the target of much controversy. That cannot be avoided entirely, but a new framework could mitigate the conflict.  Furthermore, he/she would have a better claim to impartiality than the alliance of national governments that stands behind the institutions formerly known as Troika
4. Help buffer regional shocks. The EU-FM could also contribute to facilitating transfers to countries in a situation where they are unlikely to recover and rebalance on their own through internal devaluations and reforms alone. Today, the EU level pushes for structural adjustments. But the cost of the investment that is often needed to put such reforms into practice is carried by member states. The creation of an EU-FM would allow to bring in the missing link. With a small but flexible investment budget at his/her disposal, he/she would enable the European level to support public investment levels in times of fiscal consolidation or to contribute to the reaction to a specific asymmetric external shock. He/she could also provide meaningful rewards in the context of significant reform efforts that help an economy adapt better to the requirements of EMU. However, those resources should not only be monetary. The EU-FM should have some discretion (at least at the level of a proposal) in allowing countries to comply in a more flexible way with European rules.
5. Represent the euro area. Together with the ECB President and following the traditional division of tasks between the central bank and the finance ministry, the EU-FM would represent the euro area in the relevant international institutions and fora. In some cases (e.g., in today’s G7 and G20), large member states could still send their own representatives, but this should become less common in the long run. Beyond the narrowly defined institutional and legal representation of the euro area, the EU-FM would also express the aggregated interest of the entire euro area. That interest is more than the sum of its parts, and it needs its own voice.