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The financial crisis that hit Europe in 2008 and the subsequent sovereign debt crisis unveiled the euro area's institutional weaknesses. Consequently, EU member states and institutions have taken steps to address shortcomings.
They introduced institutional innovations such as the establishment of the European Stability Mechanism (ESM) – a permanent crisis management mechanism. They also:
decided to activate financial assistance for member states experiencing difficulties
strengthened fiscal and economic surveillance
put in place two key pillars of the banking union – the Single Supervisory Mechanism and the Single Resolution Mechanism
Many member states also started ambitious reforms.
To ensure the member states are equipped to face similar shocks in future, EU leaders set out to work on further deepening the Economic and Monetary Union (EMU).
Member States are working to further strengthen the euro area.
Economic and Monetary Union (EMU) refers to a stage in the ongoing process of economic integration of the EU member states that started in 1957, when the then member states focused on building a common market.
Greater economic integration reflects a long process in the history of the EU which is designed to bring the benefits of greater economic stability, higher growth and steady creation of employment across the EU member states.
Over time it became clear that closer economic and monetary cooperation was desirable for the internal market to develop and flourish further.
The decision that the EU should establish an Economic and Monetary Union, with the euro as its single currency, was taken by the European Council in Maastricht (The Netherlands) in December 1991. Its principles are laid down in the Treaty on the European Union, also known as the Maastricht Treaty.
What does the EMU involve?
The Economic and Monetary Union comprises a wide spectrum of initiatives:
monetary union: a common monetary policy for countries that have adopted the euro
economic union: e.g. coordination of economic policies between the member states thanks to the European Semester
fiscal union: e.g. coordination of fiscal policies, financial support for member states in difficulties, European Fiscal Board
banking union: e.g. single rulebook ensuring harmonised rules for the European financial sector, centralised supervision and resolution of banks in the euro area
capital markets union: rules promoting private risk sharing and improved access to funding
All EU member states participate in the economic union – they form the single market and coordinate their economic policies.
The countries that have already adopted the single currency – the euro – have taken a further step in economic integration and also participate in the monetary union.
The report by Commission President Jean-Claude Juncker in close cooperation with European Council President Donald Tusk, Jeroen Dijsselbloem (Eurogroup), Mario Draghi (ECB) and Martin Schulz (European Parliament) outlined a plan to deepen the Economic and Monetary Union.
It concluded that the foundations of EMU need to be strengthened to:
ensure a smooth functioning of the currency union
allow the member states to be better prepared for adjusting to global challenges
enable all member states to benefit fully from their participation in the single currency
The path towards a more resilient and complete EMU should be open and transparent to all EU member states. The report emphasised the need to preserve the integrity of the single market, which should be completed and fully exploited.
The report built on the Four Presidents' report 'Towards a genuine Economic and Monetary Union', published in 2012 at the height of the financial and sovereign debt crisis.
Roadmap
The report called for action on several fronts, to be implemented in stages.
During the first stage, starting in July 2015, the EMU should be made more resilient by building on existing instruments and making the best possible use of the existing Treaties, in other words 'deepening by doing'.
During the second stage the achievements of the first stage would be consolidated and more far-reaching measures could – under certain conditions – be agreed to complete the EMU's economic and institutional architecture.
The aim is to reach the final stage – a deep and genuine EMU – by 2025.
In May 2017, the European Commission presented a Reflection Paper on the deepening of the Economic and Monetary Union. The paper was part of the broader debate on the future direction of the European integration, which was initiated by the White Paper on the future on Europe, published by the Commission on 1 March 2017.
In December 2017, the Euro Summit discussed the future of the economic and monetary union and banking union.
EU leaders exchanged views on how to ensure that the EU has the appropriate means to face potential economic shocks, in particular:
a common backstop for the Single Resolution Fund, possibly in the form of a credit line from the European Stability Mechanism (ESM)
further developing the ESM
completing the banking union, including the gradual introduction of a European Deposit Insurance Scheme
In June 2018, leaders adopted a first set of decisions on the reform of the EMU, notably as regards the future role of the ESM and the completion of the banking union.
In December 2018, the Euro Summit endorsed a Eurogroup report of 3 December 2018, which included:
the terms of reference of the common backstop to the Single Resolution Fund
a term sheet on the ESM reform
a way forward on the banking union
Leaders also gave a mandate to the Eurogroup for further work on a budgetary instrument for convergence and competitiveness(BICC) for the euro area (and interested ERM II member states), in the context of the multiannual financial framework.
In December 2019, the Euro Summit welcomed the progress made in the Eurogroup on the deepening of the EMU. Leaders took note of the letter of the Eurogroup President of 5 December 2019, which reported on the:
state of play of ESM reform
completion of the banking union
BICC
The Euro Summit tasked the Eurogroup to continue working on all these elements.
The work on the BICC ceased as the focus shifted to developing an economic response to the COVID-19 crisis. When it proposed a Recovery and Resilience Facility in May 2020, the Commission withdrew its earlier proposal for a Reform Support Programme, in which it was understood the BICC would be incorporated.
Signature of ESM Treaty and SRF amending agreements
Representatives of EU member states signed the amending agreements to the Treaty on the European Stability Mechanism (ESM) and the Single Resolution Fund (SRF) Intergovernmental Agreement.
Today, we mark an important milestone in the further development of the Economic and Monetary Union, which will strengthen euro area's crisis prevention and resolution capabilities as well as the banking union. We also demonstrate our unity of purpose to deliver progress on important issues for the benefit of all our citizens.
Eurogroup President, Paschal Donohoe
This signature launches the ratification procedures in the member states, in accordance with their national constitutional requirements.
The Euro Summit in inclusive format, with all 27 EU leaders, took stock of progress achieved on the Economic and Monetary Union.
EU leaders noted that "the progress achieved in the Economic and Monetary Union and the banking union over the past decade has contributed to financial stability and helped maintain financing to the economy throughout the COVID-19 crisis".
They welcomed the agreement reached in the Eurogroup on the reform of the European Stability Mechanism (ESM), as mandated by the June 2018 Euro Summit, and the early introduction of the common backstop to the Single Resolution Fund (SRF) by the beginning of 2022.
The Euro Summit invited the Eurogroup to prepare "a stepwise and time-bound work plan on all outstanding elements needed to complete the banking union".
EU leaders also called for "rapid progress" on the new European Commission action plan for the capital markets union.
The Eurogroup agreed to proceed with the reform of the European Stability Mechanism (ESM), to sign the revised Treaty in January 2021 and launch the ratification process. Ministers also agreed to advance the entry into force of the common backstop to the Single Resolution Fund to the beginning of 2022.
The Eurogroup, in inclusive format, prepared a report for the Euro Summit that will take place on 13 December.
This year, we have focused on deepening the EMU via establishing BICC and reinforcing the European Stability Mechanism. Next year, completing the banking union, including EDIS, will be a key aspect on finance ministers’ agenda.
The Eurogroup in inclusive format continued work on the reform of the Economic and Monetary Union.
Ministers took note of the progress made on the legal documents related to the European Stability Mechanism (ESM) treaty.
The Chair of the High Level Working Group on the European deposit insurance scheme (EDIS) presented the progress made in the discussions on a roadmap for political negotiations.
I see a clear commitment now from all ministers to engage in a much needed debate to complete the banking union. Next step is to agree on a roadmap to start political negotiations on EDIS in December.
The Eurogroup in inclusive format agreed on all the critical elements of governance and financing of the budgetary instrument for convergence and competitiveness (BICC) for the eurozone.
It defined governance, financing as well as allocation and modulation of the BICC in a term sheet.
Only two years ago, a fiscal capacity for the euro was a purely academic endeavour. Last night, we turned it into reality. This is a new pillar in the foundations supporting the euro.
The Eurogroup in inclusive format continued to work on deepening of the Economic and Monetary Union (EMU). Ministers focused on all pending issues of the the budgetary instrument for convergence and competitiveness (BICC) for the euro area and Exchange Rate Mechanism (ERM) II member states on a voluntary basis. Ministers are aiming to report swiftly to EU leaders in the view of the broader debate in the context of the next multiannual financial framework (MFF).
Ministers discussed the follow-up to the Euro Summit of June 2019, including ESM reform, banking union and the budgetary instrument for convergence and competitiveness.
Leaders invited the Eurogroup in inclusive format to continue working on all the elements of the comprehensive package on the strengthening of the EMU, as set out in the letter of the President of the Eurogroup of 15 June 2019. Ministers also discussed the organisation of the work in the next semester.
"We will strive to deliver coherent and meaningful solutions in the coming months. For that we need a spirit of compromise of all sides. The all-nighter of the June’s Eurogroup is still in our memory and there’s a lot of work ahead of us. I will continue to approach this in a constructive spirit."
The Euro Summit in an extended format of EU27 leaders looked at the economic situation together with European Central Bank (ECB) President Mario Draghi.
Leaders also discussed work done by the Eurogroup regarding deepening of the Economic and Monetary Union (EMU), in particular:
a budgetary instrument for convergence and competitiveness (BICC) for the eurozone
changes to the treaty establishing the European Stability Mechanism (ESM)
strengthening the banking union
The Euro Summit welcomed the progress made by the Eurogroup and invited it to continue working on all the elements of the package.
Ministers agreed on a term sheet describing features of the budgetary instrument for competitiveness and convergence.
The Eurogroup also reached a broad agreement on revising the ESM treaty text to implement the political agreement reached at the Euro Summit in December 2018. This agreement covers issues such as the common backstop for bank resolution, the precautionary instruments as well as institutional aspects and the issue of cooperation between the ESM and the European Commission within and outside programmes.
Our aim was to deliver on three key areas ahead of the Euro Summit: the budgetary instrument, the ESM Treaty and Banking Union. More work is needed, but we made real progress.
Following the mandate received by EU leaders at the 14 December Euro Summit, the Eurogroup in inclusive format continued discussing the deepening of the Economic and Monetary Union (EMU).
Ministers focused on revenue aspects and looked into an overview of all the features of the budgetary instrument for convergence and competitiveness for the euro area and Exchange Rate Mechanism (ERM) II member states on a voluntary basis.
Eurogroup
In inclusive format, the Eurogroup continued to discuss the deepening of the Economic and Monetary Union (EMU). Ministers exchanged views on the features of the euro area budgetary instrument with a focus on governance aspects. The Eurogroup aims to agree on the features of the euro area budgetary instrument and to report to EU leaders in June.
Governance of the euro area budgetary instrument is critical. It’s about how we will run this tool, it is a political issue that also includes a technical and legal dimension.
Ministers exchanged views on the features of the budgetary instrument for convergence and competitiveness for the euro area, and European Exchange Rate Mechanism (ERM II) member states on a voluntary basis, with a focus on expenditure related aspects.
There is broad agreement that this tool should support both structural reforms and public investment. This, in line with priorities and challenges identified in the European Semester.
Ministers held a first exchange of views on the way forward regarding the budgetary instrument for convergence and competitiveness for the euro area and European Exchange Rate Mechanism ERM II member states on a voluntary basis.
"You all remember this was a controversial topic in December, but we are in a new phase now. The instrument was agreed by leaders and now we need to flesh out the details. The attitude around the table is constructive and I am sure we will come to an agreement in time for June."
Ministers exchanged views on the follow-up to the December Euro summit and discussed how to organize the work ahead, including an exchange of views on the next steps on the European deposit insurance scheme (EDIS) and the budgetary instrument for convergence and competitiveness for the euro area and ERM II member states on a voluntary basis.
Highlights of the European Council and Euro Summit, 14/12/2018
EU leaders discussed the reform of the Economic and Monetary Union on the basis of a report by the Eurogroup.
They adopted a statement endorsing all elements of the Eurogroup report, including:
a term sheet on the ESM reform
the terms of reference of the common backstop to the SRF
a way forward on the banking union
Leaders also gave a mandate to the Eurogroup for further work on a budgetary instrument for convergence and competitiveness for the euro area, in the context of the multiannual financial framework.
The Eurogroup in inclusive format prepared the Euro Summit that will take place on 14 December. The Euro Summit is expected to take concrete decisions and provide guidance on the way forward on EMU deepening.
Ministers agreed on a report to leaders on EMU deepening, including draft terms of reference of the common backstop to the SRF, a term sheet on the ESM reform and a way forward on the banking union and possible instruments for competitiveness, convergence and stabilisation.
EU leaders met together with Eurogroup President Mário Centeno and European Central Bank President Mario Draghi for the Euro Summit in inclusive format of 27 EU member states. They assessed the state of play of negotiations on the deepening of the Economic and Monetary Union (EMU) with a view to the Euro Summit in December.
The Eurogroup discussed the reform of the European Stability Mechanism (ESM), as mandated by the Euro Summit meeting in June 2018. The Eurogroup is expected to agree 'on a term sheet for the further development of the ESM by December 2018'.
The discussion focused on two aspects of the reform:
a review of the ESM toolkit, in particular the effectiveness of precautionary instruments and their eligibility criteria
the role of the ESM in crisis management and prevention
Ministers agreed to request further technical work, in particular on the effectiveness of the precautionary conditioned credit line and the related ex ante eligibility criteria.
They also agreed to continue the discussion on developing the ESM's role in crisis management and prevention, focusing on the need to avoid possible overlap with the existing EU processes and the European Commission's competences in this area.
Ministers discussed the follow-up to the June 2018 Euro Summit, which had agreed that the Eurogroup would further discuss all the items related to the deepening of the EMU listed in Eurogroup President Centeno's letter of 25 June. The Eurogroup agreed to further look into these topics in a sequential manner at its upcoming meetings in preparation of the December Euro Summit.
At this meeting, the Eurogroup discussed in particular issues related to the common backstop to the Single Resolution Fund (SRF). The Euro Summit of June 2018 agreed that the ESM would provide the common backstop to the SRF and that the Eurogroup would prepare terms of reference on this matter by December 2018.
Eurogroup President Mário Centeno informed the Eurogroup on the outcome of the Euro Summit, which took place on 29 June.
He also briefly outlined the issues relating to the deepening of the Economic and Monetary Union on which the Eurogroup would be expected to work before the next Euro Summit meeting, scheduled to take place in December this year.
These include terms of reference for the common backstop to the single resolution fund to be provided by the European Stability Mechanism (ESM), and a term sheet for the further development of the ESM, as well as a roadmap for the beginning of political negotiations on EDIS. The Eurogroup will also discuss all other elements listed in the Eurogroup president's letter of 25 June 2018 to President Tusk.
EU leaders met for the Euro Summit in inclusive format of 27 EU member states. They adopted a first set of decisions on the reform of the EMU, including the future role of the ESM and the completion of the banking union.
The Eurogroup met in inclusive format to prepare the Euro Summit of 29 June 2018.
The discussion focused on the further steps for the banking union and the reform of the European Stability Mechanism. Ministers also touched upon fiscal issues, including proposals on a possible euro area fiscal capacity.
Finance ministers from 27 EU member states exchanged views on the completion of the banking union and the future role of the ESM. They took stock of the progress made so far and discussed the way forward in preparation for the upcoming leaders' meeting in June.
Leaders of the 19 eurozone countries discussed long-term reforms of the economic and monetary union, including proposals such as the creation of a fiscal capacity for the eurozone.
"We are experiencing the most favourable economic situation since the introduction of the euro. It is therefore the best time to reflect strategically on our long-term ambitions. This is what today’s Euro Summit was all about", said President Tusk after the meeting.
Leaders reaffirmed the most urgent political priorities:
strengthening of the banking union
reform of the European Stability Mechanism
They said they would continue talks on these issues at the next Euro Summit in June when they expect to take the first decisions.
The discussions at the Euro Summit built on a note that President Donald Tusk had sent to leaders ahead of the meeting. The note highlighted a link between the issue of fiscal capacity and that of sound and responsible policy-making.
Leaders of the 19 eurozone countries discussed long-term reforms of the economic and monetary union, including proposals such as the creation of a fiscal capacity for the eurozone.
"We are experiencing the most favourable economic situation since the introduction of the euro. It is therefore the best time to reflect strategically on our long-term ambitions. This is what today’s Euro Summit was all about", said President Tusk after the meeting.
Leaders reaffirmed that the most urgent priorities are:
strengthening of the banking union
reform of the European Stability Mechanism
They said they would continue talks on these issues at the next Euro summit in June when they expect to take the first decisions.
The Eurogroup discussed ways to deepen the Economic and Monetary Union, in the run-up to the Euro Summit on 23 March.
Ministers looked into the ongoing work towards completing the banking union and the reform of the European Stability Mechanism. They also touched upon fiscal issues. The President of the Eurogroup will report on these discussions to leaders at the Euro Summit.
The finance ministers of 27 EU member states discussed the progress achieved in implementing the June 2016 roadmap to complete the banking union and looked into its further development.
The Euro Summit discussed the future of the economic and monetary union and banking union.
EU leaders exchanged views on how to ensure that the EU has the appropriate means to face potential economic shocks.
The debate built up on a note circulated by President Tusk ahead of the summit as part of the Leaders' Agenda. This note outlined a number of ideas on which there is a broad convergence, such as:
putting into operation a common backstop for the Single Resolution Fund, possibly in the form of a credit line from the European Stability Mechanism (ESM);
further developing the ESM, possibly to become a so-called European Monetary Fund
further developing the Ecofin Council Roadmap of June 2016 on completing the banking union, including the gradual introduction of a European Deposit Insurance Scheme
Commission presents policy package on EMU deepening
The European Commission presented a package of initiatives aimed at deepening EMU.
The package includes:
a proposal to bring the ESM into the EU legal framework, transforming it into a European Monetary Fund
a proposal to double the financial envelope of the Structural Reform Support Programme
a proposal to integrate the substance of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, including the Fiscal compact, into EU law framework
The Eurogroup in inclusive format continued its preparation of the Euro Summit meeting of 15 December, which will discuss matters related to the deepening of the Economic and Monetary Union (EMU) and the completion of the banking union.
The ministers of 27 EU member states discussed possible steps towards the completion of the banking union. The Commission presented the main elements of its recent communication on this topic.
In June 2016, the Council concluded a roadmap to complete the banking union. In June 2017, the Council Presidency presented a progress report on the ongoing work on measures to strengthen the banking union and reduce risks in the banking sector.
Ministers also exchanged views on the future of fiscal governance in the euro area, including issues related to fiscal rules and ideas for possible new euro area fiscal policy instruments.
The Eurogroup discussed the possible future roles and tasks of the European Stability Mechanism (ESM) in the context of the ongoing broader debate on the future of the Economic and Monetary Union.
This initial discussion focused on the ESM's possible role in crisis management and in relation to the banking union, as well as on how this possible new role would affect its governance structure and its place within the EMU setup.
Ministers exchanged views on how to increase economic resilience in the Economic and Monetary Union.
They identified a number of policy areas, where improvements could lead to increased economic resilience. These include the need for the diversification of the economy, the flexibility of labour and product markets, taxation incentives for investment, quality of institutions, and other areas.
This initial discussion will guide the Eurogroup's more concrete thematic discussions on growth and jobs in the future.
Economic resilience refers to a country's ability to prevent and address economic shocks. It is particularly important for the euro area, where countries share a single currency and are highly interdependent, and where a lack of economic resilience in one country may rapidly lead to serious consequences in other euro area economies.
Ministers held a general discussion on the further deepening of the EMU, against the background of the reflection paper published by the European Commission on this topic on 31 May 2017.
European Commission issues a reflection paper on the deepening of the Economic and Monetary Union
On 31 May, the European Commission issued a reflection paper which sets out options for further strengthening the Economic and Monetary Union, with the aim of completing its construction by 2025.
The purpose of the reflection paper is to facilitate the ongoing debate on the future of the EMU.
It is part of a series of reflection notes covering various policy areas included in the white paper on the future of Europe that was published by the Commission on 1 March 2017, building on views expressed in the Five Presidents' report, published in 2015.
The EU leaders discussed the progress achieved in the different areas of work towards completing the Economic and Monetary Union, including the roadmap to complete the banking union. It endorsed the recommendation on national productivity boards.
The Economic and Financial Affairs Council reviewed the progress made on a number of initiatives proposed under first stage of the project.
It adopted one of the proposals - the Council Recommendation on establishing national productivity boards (originally - competitiveness boards).
The member states are recommended to set up national boards to analyse developments in productivity and competitiveness and related policy challenges. The recommendation has to be transmitted to the European Council for endorsement.
The Council also adopted conclusions containing a 'roadmap' for further work to complete the banking union.
The roadmap sets out priorities and milestones for the coming years, covering measures for risk-sharing and risk-reduction in the banking sector and addressing outstanding challenges.
The Council invited the Economic and Financial Committee to continue examining the initiative on unified representation of the euro area in the International Monetary Fund and present a report to the Council in autumn 2016.
The European Commission informed the Council of the progress achieved in relation to the Commission decision on the establishment of an independent advisory European Fiscal Board.
The European Council confirmed its commitment to working towards completing the Economic and Monetary Union, in full respect of the internal market and in an open and transparent manner.
It asked the Council to swiftly examine the Commission proposals issued as a follow-up to the Five presidents' report. In particular, work should rapidly advance on more effective economic and fiscal governance, the euro area's external representation and the banking union.
The Economic and Financial Affairs Council exchanged views on the Commission's first package of proposals that are part of the first stage ("deepening by doing") of the plan for the completion of the EMU.
The proposals included:
proposal for a Council decision on establishing a unified representation of the euro area in the International Monetary Fund
proposal for a Council recommendation on the establishment of national productivity boards
European Commission decision establishing an independent advisory European Fiscal Board
revamping the European Semester process
measures for further strengthening of the banking union, including the establishment of the European deposit insurance scheme
improving transparency and reducing complexity of the EU fiscal rules
The European Council took stock of the discussions on the report on completing Europe's Economic and Monetary Union. It reiterated that the process of completing the Economic and Monetary Union must continue in full respect of the single market and in an open and transparent manner.
Informal meeting of the EU heads of state or government
At an informal meeting, the heads of state or government held an in-depth discussion on improved economic governance and on better implementation of structural reforms on the basis of an analytical note prepared by the four presidents.
The Euro Summit invited the President of the Commission, in close cooperation with the President of the Euro Summit, the President of the Eurogroup and the President of the European Central Bank, to prepare the next steps for better economic governance in the euro area.
The European Council confirmed this mandate on 18 December 2014.
