The Republic has joined 11 other euro-zone countries in signing a joint email urging a wide-ranging discussion among European Union leaders next week on monetary union reform and specifically the idea of a euro-area budget.
Following some concern at the eurogroup finance ministers' meeting in Luxembourg that an ambitious Franco-German paper produced on Tuesday might be limiting and defining the summit agenda too narrowly, Dutch finance minister Wopke Hoekstra drafted an email to the president of the eurogroup, Mário Centeno, signed by 11 other states including Ireland, that emphasised the "wide diversity" of views on the issues raised.
Most of the 12 are part of the informal alliance of what has become known as the “Hanseatic League”, a grouping of mainly Nordic fiscally more conservative states with which Ireland has become aligned.
The joint communication – not a formal “letter”, Irish sources stressed – was not to be seen as a warning shot against Franco-German euro-budget or fiscal capacity proposals, but an attempt to assist Mr Centeno in preparing his summary of the meeting ahead of next week’s leaders’ summit.
The email warned that a number of countries viewed the proposals as raising “moral-hazard risks” and issues about “fiscal neutrality”. But, although elements of the Franco-German proposals, such as the idea of paying for such a fund in part out of national contributions but also from new Europe-wide taxes on digital profits and financial transactions, are strongly opposed in Dublin, Irish sources insisted Minister for Finance Pascal Donohue was not committed to all of the ideas in the Dutch email.
Fiscal capacity
The Minister, sources suggested, is interested in the idea, supported by much of mainstream economics, that monetary union needs a fiscal capacity to help balance economic cycles. But the Government is understood to share the Berlin view that such a fund should be limited in scope and not be a means of transferring wealth from rich countries to poorer ones.
But “there was clearly no consensus on starting to explore options” at Thursday’s meeting, Mr Hoekstra wrote, adding there was also no agreement to start exploring the use of a financial transactions tax to finance it.
Observers say, however, that such reservations still leave wide space for discussions on options such as the common unemployment insurance fund suggestion in the Franco-German paper, or a rainy-day fund suggested by the International Monetary Fund (IMF).
The IMF, for example, has gone to considerable lengths to fashion its proposal more as an insurance fund than a common investment pool – its payouts would be strictly conditional on states observing strict budget rules and then replenishing any cash withdrawals. Nobody else would be subsidising misbehaviour, it insists.
The discussions on completing monetary union at next week’s summit will only begin to broach the euro-budget issue, but there is an expectation that leaders will be able to make significantly more progress around a broad consensus on beefing up the union’s crisis management vehicle, the European Stability Mechanism, and using it as a backstop against massive bank defaults.
