Brexit, the Euro Summit, and Eurozone Governance Reform
Ian Cooper (DCU Brexit Institute)
Last week’s summit of EU leaders was actually two separate meetings. On Thursday there was a meeting of the European Council, the heads of state and government of all 28 EU member states, which defines the political direction of the EU as a whole. This was followed on Friday by a meeting of the Euro Summit, which is specifically concerned with Eurozone governance. Normally only the leaders of the 19 Eurozone states attend the Euro Summit, but sometimes it meets in extended format of EU-27, i.e. the leaders of all EU member states except the UK, when the matter under discussion concerns the long-term future of Economic and Monetary Union. This was the format of last Friday’s meeting.
The events of Thursday received much more attention than those of Friday. Media reports focused on who would be chosen to take over the top EU jobs in coming months, most importantly the President of the European Commission. On this, the European Council did not reach a decision, except to agree to meet again ten days later on 30 June for further discussions. The results of the Friday discussions – on a fiscal capacity for the Eurozone – were modest, in that the leaders agreed on the terms for a new budgetary instrument, but in a weaker form than some had hoped.
Brexit was not an important agenda item on either Thursday or Friday, but it cast a shadow over both, in different ways. Thursday was dominated by a discussion of who should lead the post-Brexit EU. The Brexit process is currently on hold while the UK is using the current Article 50 extension period (to 31 October) to choose a new leader of the Conservative party, who will also almost inevitably become the next UK prime minister. The lame-duck incumbent, Theresa May, will have little or no influence over the decision on top jobs. But the Spitzenkandidaten process, in which the Commission President would be chosen from among candidates nominated by the party groups in the European Parliament, appears to have foundered. This opens up the possibility that an outside candidate, such as the very able Brexit negotiator Michel Barnier, could be nominated to the post. If so, that would be an unforeseen consequence of the Brexit process.
On the other hand, Friday’s Euro Summit also gave an indication of the political dynamics which could characterize the post-Brexit EU. It indicates that the Eurozone states are not about to emerge as a vanguard within the broader EU that could serve as an engine for further European integration.
The Euro Summit began as a mechanism for crisis management. Starting in 2008, leaders of the Eurozone member states met occasionally on an ad hoc basis to respond to the financial crisis which began in that year and rumbled on for years thereafter. (It has an institutional parallel in the long-standing Eurogroup, the regular meeting of Eurozone finance ministers, which has a more hands-on governance role.) The Euro Summit was formalized in the Fiscal Compact treaty of 2012, which stated (in Article 12) that such informal meetings should take place “when necessary, and at least twice a year” to discuss Eurozone governance and related matters. In fact, the timing of Euro Summits has been erratic. The group met a few times in mid-2015 to address the Greek crisis, but there followed a period of more than two years before the next Euro Summit.
However, following the UK’s referendum and notification of its intention to withdraw from the EU, the pace of the meetings has accelerated: there were six Euro Summits in the 18 months between December 2017 and June 2019. Moreover, all but one of these were held not in the normal EU-19 format but in the “extended format” of EU-27. (Similarly, the Eurogroup sometimes meets in “inclusive format” of EU-27 finance ministers.) According to the Fiscal Compact, non-Eurozone states should be included in the Euro Summit when discussing “the modification of the global architecture of the euro area and the fundamental rules that will apply to it in the future.” Despite the fact that only “contracting parties” of the Fiscal Compact are supposed to attend, the Czech Republic and Croatia were also invited, “given the importance of the discussions.” (The two states have since ratified the treaty, leaving the UK as the only EU member state that is not a signatory.) This only added to the isolation of the UK, the only EU member state not in attendance.
Originally, the creation of the Euro Summit was thought to herald a growing divide between the inner core of Eurozone states set against the outer group of non-Eurozone states. Indeed, prior to the Brexit referendum, the UK aspired to play a leadership role in this outer group, and to cement the status of the EU as a multi-currency union. Lately, however, the Euro Summit has only reinforced the division between the EU-27 and the UK. Its composition has mirrored the “Article 50” composition of the European Council, which meets as EU-27 when it must make Brexit-related decisions such as whether to grant an extension to the UK.
Even so, the succession of Euro Summits have not led to a breakthrough in Eurozone governance reform, mainly due to disagreement between Eurozone states themselves rather than with those outside the single currency. One year ago, momentum seemed to be building for the creation of a Eurozone budget “to promote competitiveness, converge and stabilization in the euro area” as stated in the Franco-German Meseberg Declaration, and supported in particular by Southern member states. However, opposition has stiffened among a so-called “Hanseatic” group of mostly Northern states led by the Netherlands, including Ireland, that resists the creation of any kind of counter-cyclical “stabilization” function in a common budgetary mechanism to prevent future crises. The mechanism now under discussion is a “budgetary instrument for convergence and competitiveness (BICC)” – i.e. focused on structural reform rather than stimulus.
The Euro Summit made progress on more modest reforms in relation to the European Stability Mechanism (ESM) and banking union. But the even more ambitious proposals put forth by French president Emmanuel Macron, such as for a separate treasury and finance minister, or for even a separate parliament for the Eurozone, are still a long way off.
In relation to Brexit, however, the recent experience of the Euro Summit meeting several times in its extended format has had the overall effect of demonstrating the unity of the EU-27 in the face of the departing UK.
Ian Cooper is Research Fellow at the DCU Brexit Institute.