The “fiscal capacity” proposed by the EU, which bore strong hallmarks of an EMU-internal redistribution mechanism, was transformed by the summit decisions into a structural fund limited in both duration and scale, aimed at providing reform incentives. However, the design of these reform incentives is as yet unclear. In any event, a false strategy has been avoided.
The main progress made was with the launch of the banking union, with its pillars common banking supervision and joint resolution mechanism. The banking union is a key institutional supplement to monetary union that contributes to the stability of the eurozone by placing financial market integration on a sounder footing. The banking supervisory regime is to start operations in 2014 under the roof of the ECB. It is doubtless correct not to rush into the banking union. Nonetheless, ways to sever the fatal links between banks and sovereigns should be found before 2014 by enabling direct access to the ESM as an alternative source of capital. Given the complexity of the matter, it is to be welcomed that EU leaders have already established very concrete steps towards the banking union. By and large, the compromises now found on the ECB as the joint supervisor look appropriate, but they still have to prove themselves in practice. This applies above all to the independence of the superviory body from the EU governing council itself, which determines monetary policy. In the event of conflict, mediation proceedings are envisaged. In our view the supervisory body should be largely independent. It is also unclear in what circumstances the ECB can assume control of smaller banks. Work on the banking union should be pushed ahead swiftly. Without an effective common bank resolution regime with a restructuring fund (planned for 2014), the European banking union would remain a mere torso. Only a genuine European banking union will be in a position to bolster confidence in the European banking system.
The more it becomes evident that progress is being made in overcoming the crisis, the more Europe should carve out the time to take a visionary look into the future. One of the fundamental principles should be: Europe needs diversity in order to find its way back to growth and competitiveness. Political leeway is indispensable when, in a monetary union, exchange rate and monetary policy instruments are no longer available. Maintaining the principle of subsidiarity is a must. As we see it, a target picture for Europe is essential – which is why we weighed into the debate with our own proposal a few days ago. (Euro 2022 Paper).