Good morning, I hope you have got more sleep than we did.
Strengthening the euro is clearly a topic that keeps us awake at night.
This June Eurogroup meeting, which ended in the small hours of this morning, closed a cycle of intense work of finance ministers and their teams in the last six months on the euro area reform. Many topics were on the table in a very complex web of negotiations. More work is needed, but today we have taken a number of small steps that combined result in real progress. But before I get to that let me start with the other Eurogroup items.
This was the first meeting for the newly appointed minister of Finland, Mika Lintila, who presented us the economic policy priorities of his government.
The first topic of the day was the IMF article 4 on the euro area. We welcomed the IMF Managing Director, Christine Lagarde, who came to Luxembourg to present it.
We broadly agreed with the Fund’s assessment of the challenges facing the euro area. I should emphasise that the euro area economy is growing and adding jobs.
Our discussion focused on the risks to the outlook, which are mainly political in nature. They depend on the willingness of politicians to take decisions that will clear the uncertainty that is putting a strain on the economic activity.
We proceeded with a discussion on inequality in the euro area. The distinguished Professor Philippe Aghion provided us with enlightening economic insights on the issue. He outlined how to reconcile innovation and inclusive growth.
The Commission’s analysis shows that income inequality is relatively low in euro area countries compared to other parts of the world. Yet, reducing inequality remains a priority. The Commission discussed the scope of policy actions to deliver an inclusive growth.
Inclusive growth also plays a key part in enhancing resilience, promoting convergence and fostering political consensus around structural reforms. Ministers stressed the importance of getting to the root causes of inequality, such as technological changes and low investment in skills.
This topic generated a lively discussion, illustrates the need to raise the topic of inequality at the European level and think of it from a truly European perspective. For example, we need to improve data collection and develop indicators on inequality treating the euro area as one. These indicators are not available today.
Yet again, I’m happy that we have these open and lively discussions on wide-ranging topics in the Eurogroup from time to time. These benefit from out-of-box thinking from external experts like Professor Aghion and foster an exchange of ideas among Ministers.
Later on we were also debriefed by the institutions on the outcome of the Cyprus post-programme surveillance report. We welcomed the strong economic outlook and the fiscal effort of the Cypriot authorities, and emphasised the need to tackle the remaining vulnerabilities of the financial sector.
Finally, we adopted a work programme for the second half of 2019 and, under miscellaneous, the Commission gave us an overview of their spring economic package, including its proposed action on Italy. Let me say a word on that. It was a brief discussion.
The Eurogroup followed the opinion of the Economic and Financial Committee where there is agreement with the Commission that a debt-based procedure is warranted. And Italy is invited to take the necessary measures to ensure compliance with the provisions of the SGP.
We were quite fast in dealing with the first part of our agenda. A bit less so in the second part, on the EMU reform.
Our aim was to make further progress on three key areas ahead of the euro summit: the budgetary instrument for convergence and competitiveness, the ESM Treaty and Banking Union.
Firstly, we agreed on the main features of the budgetary instrument. That was exactly the mandate we had obtained from leaders in December. We agreed on a term sheet describing these features that I will submit to the President of the European Council.
This is an important step forward in the process of deepening the single currency. The instrument will help to increase the convergence and competitiveness of our economies, through a more inclusive growth, better resilience and an enhanced euro area governance process.
The Eurosummit and Eurogroup will have a strategic role on defining the precise priorities that should be financed. The instrument will finance structural reforms and public investments in coherent proposals from member states, reflecting our common guidance and other necessary conditions.
When we talk about a budget, the size matters and that will be decided by Leaders later in the year. But the design of the instrument is also relevant. On governance, we will work to codify the dedicated governance arrangements in an additional act. On financing, our discussions have covered a lot of ground but more work is definitely needed to define the appropriate sources of financing. We will continue to explore options at political level.
We agreed on a comprehensive list of main features and now there is still some work ahead of us to close the remaining elements and put everything in place. This is nevertheless a step forward.
We have also reached a broad agreement on revising the ESM Treaty to implement the political agreement reached in December 2018. This agreement covers a wide range of issues including the common backstop for bank resolution and the precautionary instruments. There are also institutional aspects and the issue of cooperation between the ESM and the European Commission within and outside programmes.
This was not yet the end of our work on ESM reform. In the second half of the year, we will need to align a series of related legal documents with the revised ESM Treaty. This will then allow us to conclude an agreement on a full package of documents by the end of the year, and to kick-start the ratification process. This is in line with our December agreement.
On Banking Union, we have decided since December to broaden the scope of our discussions on a European deposit insurance scheme (EDIS).
We established a High-level Working Group (HLWG) at the level of our deputies in January. The report by the chair of this group sets out a broader vision of what the key elements of the future “steady state” Banking Union could look like. There is broad convergence on the principles that should guide the further strengthening of the Banking Union.
Countries are not yet ready to take a decision on the next steps. More work is needed on this file and we have to to define the sequence of the decision making process. This should include the development of a roadmap towards beginning political negotiations on a European deposit insurance system (EDIS) and we have mandated the HLWG to report back again in December 2019. The result could then feed in the next institutional cycle.
Let me again underscore that these were very intense and productive discussions. I would like to thank all those involved for their very hard work. Europe needs a spirit of compromise. That is the glue that can keep us together as we move forward.