Europe News

EU Draft Urges Contracts for Euro States

Alex Barker and Peter Spiegel, Financial Times

Euro zone countries would have to sign binding contracts with Brussels, committing them to detailed fiscal reform, according to a draft European Union agenda that would increase the bloc’s control over national economic policies.

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The provision, included in a report distributed to EU countries before this month’s summit, would require all 17 euro zone members to sign on to the kinds of Brussels-approved policy programs and timelines now negotiated only with bailout countries.

If adopted, the plan could help to meet demands in Germany for tighter control over the economies of highly indebted countries such as Italy and France that have a mixed record on economic reform.

The proposals, seen by the Financial Times, reflect how far some EU leaders believe they need to overhaul the euro zone with more centralized decision-making. It is a shift that many policy makers conclude will require a wholesale change in EU treaties.

The draft is the first salvo in an anticipated fight over how to give the euro zone powers now reserved for national finance ministries. Coupled with an impending plan from José Manuel Barroso, the European Commission president, for treaty changes, it threatens a new round of debate over how much sovereignty national governments would cede to a supranational institution.

Among the more ambitious proposals included in the document, part of an effort by Herman Van Rompuy, the European Council president, to create a blueprint for a euro zone economic union by the end of the year, is the creation of a central euro zone budget. This, officials said, could be used to help struggling countries in times of economic crisis.

German officials have expressed support for such a multinational budget as a way to pool national resources without resorting to mutualizing sovereign debt.

Pierre Moscovici, the French finance minister, suggested last month that such a common budget could be used to run unemployment benefits for the bloc.

Officials involved in pre-summit talks said while there was growing enthusiasm for a common budget among bigger member states, there was no common view on how it would be funded or used.

“There seems to be growing intellectual consensus on the idea but not on the modalities,” one EU official said.

The document is also likely to revive the debate on a “two-speed Europe,” with the 17 members of the euro zone headed towards closer economic co-ordination while the 10 non-euro “outs” struggle to find their role in the new union.

Officials involved in the drafting cautioned that the recommendations were aimed at stimulating discussion among the bloc’s leaders. Each proposal is mentioned as a measure to be “explored.”

But Mr. Van Rompuy’s draft comes after he has spent much of the past month travelling to euro zone capitals to solicit national leaders’ ideas on a way forward, meaning that the draft probably includes measures supported by several of them.

The draft tries to maintain a fast pace for a euro zone banking union, urging legislators to “accelerate work” on establishing a single banking supervisor “as a matter of priority by the end of the year” — a direct rebuke to Berlin, which has attempted to slow the process.