1. Towards a banking union
Establishing a banking union is a lengthy and complex process, but it now seems on track. The future banking union relies on a single rulebook and three “pillars”: a single supervisory mechanism (SSM), a single resolution mechanism (SRM) and a common mutual deposit guarantee scheme. The SSM simply means that the ECB will be in charge of supervising the biggest Eurozone banks’ balance sheets; for the other banks, national financial regulators will mostly be in charge. This first pillar enters into force this year. The European institutions also managed to agree on the second pillar: the ECB will be the main competent authority for launching a bank’s resolution, while the Commission would in principle be the authority in charge of drafting resolution schemes. The purpose is to ensure that all ailing banks are treated equally across the Member States participating in the banking union (Eurozone countries + volunteers) and that preventive measures are adopted early enough. The resources in the resolution fund will be progressively pooled in one mutualised fund over a period of eight years. Finally, institutions will have to negotiate the third pillar: a common deposit guarantee scheme. This would put all savers and all banks on an equal footing, as the risk would be shared among all participating Member States. These various reforms should reduce the risk of having to resort to costly bail-outs.
2. Increasing fiscal responsibility and coordination
The debt crisis in the Eurozone partly originates in reckless spending during the past decades in several Member States. To tackle this, Member States and European institutions have decided to adopt more stringent rules on fiscal policy aimed at restoring sound finances and avoiding passing on an exorbitant debt burden to the next generations. One initiative is the “European Semester”: in January, the Commission issues a report on EU-wide and country-specific economic outlook. Member States then agree on measures to be implemented to remedy potential imbalances. They also submit to the Commission their fiscal plans. Then, the Commission reviews them and make country-specific recommendations which must be adopted by the Council. During the second half of the year, Member States are supposed to implement these recommendations when drafting the following year’s budget.
Another initiative is the “Six-pack” to improve the compliance with the maximum debt-to-GDP (60%) and deficit-to-GDP (3%) ratio. Excessive imbalances (e.g., an excessive trade surplus or deficit) can be subject to a corrective procedure as well. Finally, let us not forget the “two-pack” (two regulations) to reinforce the coordination between economic and fiscal policies in the Eurozone.
3. Solidarity to maintain the Eurozone’s integrity and prevent economic havoc
Already in 2010, European leaders and MEPs acknowledged that solidarity needed to go together with fiscal responsibility. Consequently, the European Stability Mechanism (ESM) was established in 2012 to replace two temporary support schemes. The ESM is a permanent solidarity fund to support Eurozone countries experiencing financial difficulties.
Other actions and tools contribute to keeping the Eurozone’s integrity: the ECB, through the voice of its President Mario Draghi, committed itself to do “whatever it takes to save the Euro,” thus helping to restore some confidence in the Eurozone. Furthermore, cohesion funds in the European budget can help to mitigate the effects of national austerity; the problem is that national and local authorities insufficiently use available resources!
4. Reforming the banking and financial system
EU institutions have been very busy during the past five years, discussing rules to make the financial system safer and prevent the repetition of massive bail-outs with taxpayers’ money. Multiple reforms have been adopted; some are still under discussion. To give a few examples:
- Capital requirements for banks have been increased to limit their leverage (the ratio between the assets of a bank and its capital), thus reducing the risk of having to bail out an ailing bank.
- A cap on banker’s bonuses shall limit the incentives to excessive risk-taking.
- Rules on bank recovery and resolution have been developed. They include a prevention pillar (both the bank and the resolution authority must prepare emergency plans), an early intervention pillar to tackle problems at early stages and prevent them from spreading, and a resolution pillar, which includes the famous “bail-in”, i.e., the fact that shareholders and unprotected bondholders should pay before taxpayers.
- A new European system of supervision of financial markets was introduced to coordinate (or even harmonise) financial regulation across the EU and better supervise financial markets.
5. Improved Deposit Guarantee Schemes
To prevent bank runs and the collapse of the European banking system, which would have had immense costs and dramatic consequences for most European citizens, the EU institutions have agreed to new rules on Deposit Guarantee Schemes (DGS). €100,000/client/bank will be covered by these national DGS. Moreover, intervention in favour of clients of a failing bank would be accelerated. In addition, a permanent guarantee fund shall be established in each Member State: within 10 years, it should represent 0.8% of guaranteed deposits. The money will come from risk-based contributions from banks.
6. New public procurement rules
Public procurement represents an important part of public spending. In times of spending cuts and budgetary restraint, it is particularly important to ensure that taxpayers’ money yields the best possible results. Therefore, the EU institutions reformed the public procurement rules to clarify the use of criteria to determine which tender offers the best value for money, give more space to innovative tenders, cut red-tape and encourage the participation of SMEs in public procurement, and fight social dumping and disregard for workers’ rights.
7. Fighting against fraud
Fraud reduces public revenue and undermines the fairness of our tax systems and subsidies programmes. The lost sums represent hundreds of billions of euros! European institutions showed their commitment to protecting your money from fraudsters through various initiatives aimed at closing loopholes in cross-border taxation which allow big groups to unduly reduce their tax bill, improving the cooperation between tax and judicial authorities from different Member States, and tackling VAT fraud. The European Parliament has also initiated a proposal for harsher punishments against EU budget fraudsters.