An Institutional Framework for a Reformed Eurozone

When European Economic and Monetary Union (EMU) was launched in 1999, the European Central Bank (ECB) assumed responsibility for monetary policy in the Eurozone. But unlike other currency areas, the boundaries of which are generally those of nation-states, the ECB has no Eurozone government or Eurozone finance minister as counterpart. Instead, a multitude of national and European actors participate in economic governance alongside the ECB. This makes Eurozone governance a complex process that is often less than fully efficient, transparent and democratic.

When the Eurozone was founded, the ECB was its only dedicated institution. At the time the Maastricht Treaty was negotiated, it was assumed that a common currency excluding certain EU states would only be a transitional phase. Over the years it became clear that not only would the opt-out states – the United Kingdom and Denmark – remain permanently outside, but Poland and other Central and Eastern European states were also retreating from the goal of rapid accession. Therefore, differences in membership between the Eurozone and the EU are going to persist for the foreseeable future.

At the same time, the initial years of EMU underlined the need for considerably greater coordination and integration between Eurozone states than within the EU and the internal market. The series of Eurozone crises following the 2007/2008 financial meltdown in the United States left no doubt that the Eurozone lacked instruments and institutions. Now the question of its institutional arrangements has returned to the agenda. The structures have already experienced change in the course of the crisis management process, which created new formats and instruments in the European Stability Mechanism (ESM) and the Euro Summit. There are also far-reaching proposals for improving governance structures to enhance the democratic legitimacy and efficiency of Eurozone decision-making.

The issue became even more urgent in 2016. Firstly, the United Kingdom’s “Brexit” referendum in June 2016 stimulated discussions about improving the transparency, efficiency and democratic legitimacy of decision-making. Calls for referendums on EU membership have been raised in other Member States as well. Secondly, there is growing acceptance of the idea that the EU’s future will be a great deal more diverse than had once been thought. For some states, differentiation may mean “less EU”. Others, like the Eurozone, see the possibility and functional necessity for deeper integration as the essence of the EU. This institutional dimension can only be addressed in conjunction with the questions of which economic, financial and budgetary instruments should in fact be located at federal level in a monetary union, and what the functional needs are in terms of coordinating and potentially monitoring national policies in order to underpin stable macroeconomic development. In connection with institutional reforms, it is also relevant whether the differences in membership of Eurozone and EU are expected to persist for the foreseeable future. This contribution assumes that they will. Thus, the Eurozone states should gradually create and strengthen institutions, forums and administrative structures of their own, and potentially seek their own Eurozone Treaty – while making sure that it all remains embedded in the EU.

The following section begins by describing the existing institutional structure of the Eurozone. Then the principles for reform and the places where action is required are outlined, along with concrete proposals for developing them.1 Finally, the prospects for institutional reforms and the implications for the Eurozone’s relationship with the EU are discussed.

THE STATUS QUO

EMU has only one federal institution: The politically independent European Central Bank. The ECB is responsible for monetary policy in the Eurozone, with a remit to preserve monetary stability. There has been no corresponding transfer of economic policy and budgetary powers to the European level. Therefore – alongside the European Commission – national governments still play a decisive role: They set their own national budgets – supposedly in line with the Commission’s recommendations and within limits defined at the European level. They also legislate at the initiative of the European Commission, in many areas on an equal basis with the European Parliament.

Ecofin

The national governments of the EU Member States participate in law-making and economic and budgetary coordination through the Economic and Financial Affairs Council (Ecofin). Ecofin, comprising the national finance and economics ministers, is the decisive institution with regard to economic and financial legislation. It is responsible for coordinating and monitoring EU Member States, and rules on sanctions under the Stability and Growth Pact. Ecofin also decides whether to accept EU Member States into the Eurozone and approves the EU’s annual budget jointly with the European Parliament.

In most cases Ecofin takes decisions by qualified majority voting; tax questions require unanimity. The European Parliament is consulted where it is not already involved as a co-legislator in the scope of the ordinary legislative procedure. Eurozone and non-Eurozone members have different voting rights to ensure that matters concerning the Economic and Monetary Union (EMU) (Art. 136 [1] TFEU) and securing the Euro’s place in the international monetary system (Art. 138 [1] TFEU) are decided only by the ministers of the Eurozone states.

Eurozone-specific formats: Eurogroup and Euro Summit

Alongside Ecofin, the Eurogroup was established in 1998 as an exclusive forum for the Eurozone ministers in order to account for the specific interdependencies and needs for joint action within the Economic and Monetary Union. To date, however, it has no decision-making powers. Although it was originally created outside the Treaties, the Eurogroup is today a firm fixture in the Eurozone governance framework and plays a major role in economic and financial coordination. It is first mentioned in the Lisbon Treaty (Art. 137 TFEU) – with reference to the annexed Protocol No. 14 laying out the composition and objectives of the Eurogroup. The Eurogroup has had a chair since 1 January 2005, serving thirty-month terms, while the rotating Presidency of the Council of the EU chairs Ecofin and changes every six months.

As the debt crisis sharpened, the heads of state and government of the Eurozone states held increasingly frequent emergency meetings, generally immediately before or after the European Council. Initially, from 2008 onwards, the summits were ad hoc crisis management meetings. Not until the Euro Summit of 26 October 2011 did the Euro states agree on a Franco-German proposal to institutionalise the gathering as a regular forum to steer Eurozone development and economic cooperation at the highest political level. The plan was for the heads of state and government to meet at least once every six months. But in the crisis years 2011/2012 meetings were held considerably more frequently and the discussions often concentrated on operational questions.

The Euro Summit was given its own permanent chair, parallel to the office of the permanent President of the European Council. Currently both positions are held by Donald Tusk. The Eurogroup President’s tasks are similar to those of the President of the European Council, for example in the field of organization and seeking common ground before and during the meetings of the heads of state and government. Finally, in 2012, the Eurozone formats acquired their own administrative base, with a dedicated working group – comparable to the Council working groups – to prepare the meetings of the Eurogroup and the Euro Summit and resolve technical questions in advance. After operating especially intensely during the worst phases of the crisis, the format has receded increasingly into the background since the acute crisis abated in 2013. The most recent Euro Summit was held on 12 July 2015.

European Commission

The European Commission has the right of initiative and presents draft legislation for approval by the Council of Ministers and the European Parliament in a codecision procedure where both of the latter have equal rights. The Commission also monitors the implementation of European legislation and may request the European Court of Justice to impose sanctions. It plays a decisive role in monitoring and coordinating the Member States’ budget and economic policies. Under the Stability and Growth Pact the Commission works preventively to stabilise national budgets by formulating reform proposals for countries at risk of violating the deficit criteria. Wherever a violation occurs, the Commission may, with Ecofin’s approval, initiate a deficit procedure. The role of the Commission was reinforced by the introduction of the European Semester in 2010, the reform of the Stability and Growth Pact, and macro-economic surveillance under the so-called Sixpack of 2011. The Commission assesses the overall economic development of each country, and – where emerging balances are identified – analyses the associated risks for the Eurozone and the EU. The Commission and Ecofin may recommend corrective measures to Member States. If an excessive imbalance is found, the Commission monitors the implementation of necessary reforms by the government in question. It also prepares an annual growth survey and evaluates the country reports and stability and convergence programmes that form the basis for discussion at the Spring European Council.

Hence, the Commission’s role in economic and budgetary coordination has grown. On the other hand, it has come under pressure through the strengthening of the European Council and Euro Summit. For example, in the crisis years 2010 to 2013 the European Council, which under the Treaty of Lisbon “shall not exercise legislative functions” (Art. 15 [1] TEU), repeatedly asked its President, Herman Van Rompuy, to prepare proposals that undermined the Commission’s monopoly right of initiative. Intergovernmental agreements, such as those to create the bailout mechanisms and the Fiscal Compact, also weakened the Union’s supranational institutions and community procedures (for more on this see also Chapter 2). This weakening of its role sometimes made it hard for the Commission to fulfil its bridging function between the Eurozone and EU-28 and to operate as the “guardian of the Treaties”.

European Stability Mechanism

In the course of the Eurozone debt crisis, the European Stability Mechanism (ESM) was created on the basis of an intergovernmental Treaty between the Euro states. The ESM is an instrument for providing financial assistance to governments and banks suffering liquidity crises wherever this is necessary to safeguard the financial stability of the Euro area (Art. 3 ESM Treaty). Assistance is conditional on reforms. The ESM replaced the temporary European Financial Stability Facility (EFSF) and European Financial Stabilisation Mechanism (EFSM) of May 2010.

The ESM can – preventively or in response to acute need – grant loans up to a maximum lending capacity of € 500 billion to fund state debt or recapitalize financial institutions. It may also purchase government bonds in primary and secondary markets. The ESM Treaty stipulates that as of 1 January 2013 all new government bonds in the Eurozone with terms longer than one year must contain collective action clauses because the Eurozone otherwise possesses no rules for state insolvencies.

Decisions on ESM assistance are taken by the board of governors, which comprises the finance ministers of the Member States and their deputies, who in turn appoint two representatives from each state to the board of directors and elect the executive director. As such, the board of governors is basically the same as the Eurogroup, except that here different voting rules apply: Votes are weighted according to financial contribution. Therefore, unlike in the Council of Ministers, there is no parity between France and Germany.

The board of governors makes decisions on financial assistance, altering the capital and credit facility, and mandating the Commission to negotiate terms and conditions for assistance by unanimous agreement. Abstentions are possible, but in urgent cases the European Commission and the ECB can bring about an emergency decision with a qualified majority of 85 per cent of votes cast. With 28 per cent of ESM capital and voting rights, the German government has a veto over such decisions.

When a Member State applies for assistance from the ESM, the chair of the board of governors asks the ECB and the European Commission to identify the funding requirements and the risks for the Eurozone and for the State in question. If financial support is approved on the basis of this assessment, the conditions are then negotiated with the European Commission, the ECB and the International Monetary Fund (IMF). In parallel the managing director prepares a proposal for a “financial assistance facility agreement” that lists the specific terms and must be approved by the board of directors. After the board of directors approves the release of the first funds, the Commission, the IMF and the ECB monitor observance of the conditions, which is decisive for release of further instalments. Fundamentally, the ESM is open to any EU state that complies with the Maastricht criteria; even without membership they may participate on an ad hoc basis.

European Parliament

The European Parliament participates in economic governance through the ordinary legislative procedures together with the Council of Ministers. On the basis of the Lisbon Treaty it is also involved in monitoring economic coordination, which occurs largely through Ecofin in discussion with the Commission (Art. 121 [6] TFEU). The Council and the Commission are required to inform the European Parliament regularly about the agreed objectives of common economic policy and the findings of multilateral surveillance.

The Parliament is also responsible for shaping the multilateral surveillance process in cooperation with the Council. In the European Semester it comments on the Commission’s annual growth survey in February and the Council’s autumn country-specific reform recommendations, in each case preceded by an exchange with the national parliaments.

In the scope of the economic dialogue, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) is entitled to summon the Presidents of the Eurogroup, the European Commission and the European Council. The European Parliament can also enter directly into dialogue with a Member State against which a procedure has been initiated for excessive deficit or macro-economic imbalances. The economic dialogue is, however, merely a non-binding communication platform that grants no veto to the European Parliament and involves neither a reporting duty on the decision-making organs and institutions nor any binding character of agreements reached with them.

With regard to the ESM, the Fiscal Compact and the Euro Plus Pact, the European Parliament has only very weak influence. It would generally be informed when these are applied, but has no influence. Its role in the management of the financial, debt and banking crisis was further restricted in the political aftermath by the shifting of central decisions to the intergovernmental level – the European Council and the Euro Summit. In the interests of rapid response to crisis, some of the newly created mechanisms, such as the ESM, were intentionally established outside the Union’s institutional framework. Whereas the amendment to the Treaty of Lisbon required to establish the ESM (Art. 136 [3] TFEU) – using the simplified Treaty amendment procedure – provided only for non-binding consultation with the European Parliament, the ESM itself was founded through an intergovernmental treaty. The European Parliament’s calls to be involved in the process of shaping and applying it have gone unheeded.

Thus, all in all the European Parliament holds a rather weak position in European economic governance. But cooperation between the European Parliament and national parliaments is attributed growing importance. Amongst other things, the Fiscal Compact provides for the European Parliament and national parliaments to discuss budgetary questions. But this does not resolve the problem that the European Parliament’s lack of integration produces gaps in the legitimation process, both in the creation of new governance instruments and in their application, because these tasks cannot be accomplished by national parliaments, either.

Why improve governance structures?

As the analysis of the status quo shows, Eurozone-specific structures and mechanisms have developed incrementally since the introduction of the Euro, with the intention of enabling closer cooperation at all instances from working level through the Eurogroup to the heads of state and government. While not themselves making legally binding decisions, these institutions offer space to discuss relevant national and European questions. Closer exchange among the Eurozone states, with the participation of the European Central Bank and the  European Commission, increases the likelihood of the Member States considering Eurozone matters from the most European perspective and at the same time being able to address problematic developments in individual states. Despite these advances, however, institutional weaknesses have become especially clear in the course of the crises. These can be summarised as follows:

• Complex surveillance with weak efficacy: Complex surveillance and coordination arrangements have emerged for the budget and economic policies of the Member States. Although there is an urgent need for coordination between national policies, no powers have been transferred. In many cases, rule-based coordination has not produced the desired results.
• Increasingly executive-driven decision-making: The need to respond rapidly to crises in the Eurozone has expanded the role of the Euro Summit and thus the executive bias of Eurozone governance. For example, the governments created the ESM as an instrument outside the Treaty framework, in whose governance the finance ministers play a decisive role – but the EU institutions are scarcely represented.
• Formats outside of the community framework: The ESM is an example of the way institutional reforms have been implemented outside of primary law and the Community institutions. The reform process has repeatedly been determined by ad hoc talks at the level of heads of state and government, which are less transparent and more weakly legitimated than Treaty revisions, which must be ratified in the Member States.
• Weak parliamentary control and participation: Neither the European Parliament nor the national parliaments possess a unified or coordinated control mechanism (with sanctions) vis-à-vis the executive decision-makers of the European Council, its President and the Eurogroup. In many central questions the European Parliament remains an observer.        

In the current Eurozone architecture, the European Central Bank is the only European institution with the ability to influence macroeconomic developments from a European perspective. But it is tied to a mandate that prioritises price stability over other economic goals such as growth and employment. This is an important fundamental principle: An independent central bank responsible for safeguarding the stability of the currency and the financial system,while governments are free to act democratically in other policy fields. But it becomes problematic when integration of monetary policy and pressure from the markets leaves the instruments at national level increasingly ineffective and the possibilities for democratic influence on macro-economic developments become very small indeed – while at the same time mechanisms at the Eurozone level are underdeveloped. In the course of the existing political processes, too little consideration has been given to Eurozone aggregates (for example when assessing budget policies), while fiscal instruments at Eurozone level, such as a Eurozone budget with allocative and stabilising functions, are lacking (see Chapters 3 and 8).

The expansion of rule-based coordination of national fiscal and economic policies also raises persistent questions as to the democratic legitimacy of measures and interventions. If excessively detailed and restrictive rules are laid down in secondary law – or largely designed to only be implemented at national level – this undermines the self-correcting function of democracy. This is especially problematic when the rule-based governance framework fails to supply solid macroeconomic results. The consequence of this situation is individual governments repeatedly refusing to follow the course imposed by “Brussels”.

This course of action can also lead to legitimacy problems. Member States that actually abide by the rules and accept the financial risks associated with European bailout mechanisms (despite facing grave difficulties) feel cheated when other members decide to ignore the rules and objectives of budgetary and economic coordination.

The Eurozone thus has a dual legitimacy problem. On the one hand, the input legitimacy of the economic governance structures of the Eurozone, as a core area of European policy, is weak. On the other hand, the output legitimacy, which traditionally plays a major role in EU affairs, has suffered after almost a decade of Eurozone crises. The EU and most national governments have a poor track record in the areas of growth, employment and social security. Economic and Monetary Union is increasingly regarded as problem rather than a solution, both by its debtors and its creditors. In the light of generally weak economic prospects, global competition and demographic trends, this is not a transient, crisis-specific issue.

CONCRETE PROPOSALS FOR IMPROVING EUROZONE GOVERNANCE

If the legitimacy issues on the input and output sides of the system – as described above – are to be rectified, it will be necessary to develop new policy instruments at Eurozone level (see Chapters 8 and 10) and to expand the community’s institutional structure. In the following, two central starting points are examined: A European finance minister and stronger parliamentary control.

A Eurozone finance minister

The proposal to introduce a Eurozone finance minister is mostly argued on the basis of improving governance capacity and executive functionality in the Eurozone’s decision-making framework, which is presently exercised above all through Ecofin and the European Commission. This would make decision-making more effective, improve the enforcement of rules and principles and strengthen the European perspective on Eurozone affairs. The Eurozone finance minister would represent not just the interests of the Member States, but those of the Eurozone as a whole.2

The idea was first raised formally by ECB President Jean-Claude Trichet,3 and subsequently discussed in various quarters with a range of differing emphases. 4 French Economy Minister Emmanuel Macron used the discussion over a possible Grexit to call for a Commissioner for the Euro, to coordinate the economic, financial and social policies of the Euro states and manage a Eurozone budget.5 ECB Executive Board member Benoît Coeuré argued for a Eurozone finance ministry under the oversight of the European Parliament. Its responsibilities would include preventing economic and budgetary imbalances, managing crises in the Eurozone, controlling the budgetary capacity proposed in the Five Presidents’ Report, and representing the Eurozone governments in international economic and financial institutions.6

The European Commission also proposes the introduction of a Eurozone treasury, to ensure strengthened, unified external representation of Eurozone interests and stronger collective decision-making in fiscal affairs, without seeking a complete centralisation of budgetary policy.7 Finally, the idea of a Eurozone finance minister and treasury is also likely to resurface in the European Parliament’s own-initiative report on “improving the functioning of the European Union building on the potential of the Lisbon Treaty”.8

In the discussion over a possible finance minister or a “Super-Commissioner” with special powers, the German government tends to concentrate on the aspect of monitoring rule-based coordination. The officeholder in Brussels should, Berlin argues, have the possibility to enforce binding measures in the Member States. In the discussion over fiscal instruments at European level, Berlin has to date concentrated above all on the question of how mechanisms could be coordinated to create incentives for reforms (see also Chapter 5).

Tasks

The possible tasks of a Eurozone finance minister relate to the various dimensions of the institutional development needs of the Eurozone as described above. Without establishing new instruments at Eurozone level, a Eurozone finance minister could – in the scope of more strongly rule-based cooperation and coordination – be responsible for conducting and enforcing budgetary and economic surveillance of Member States. Enderlein and Haas describe this function as “division of sovereignty”.9 A Eurozone finance minister could also strengthen the Eurozone dimension in all discussions so that for example an analysis of developments affecting the Eurozone as a whole flows into macro-economic analyses conducted by the Commission and the chair of the Eurogroup. This would prioritise European aggregates (over national considerations), for example concerning deficit trends and their macro-economic repercussions.

A Eurozone finance minister would be especially important if new European policy instruments were introduced, seeking to improve the effectiveness of economic governance in the Eurozone. If a Eurozone budget is instituted, somebody will need to be politically responsible for it. A finance minister could, for example, assume responsibility for a budget that provided investment spending and served to smooth out asymmetrical shocks through automatic stabilisers (see Chapter 8). Additionally, discretionary spending could give national governments – whose policies are otherwise still coordinated via rule-based mechanisms – incentives for reforms. Depending on which funding sources the budget tapped, the European Parliament or the national governments and parliaments would need to be included in the process. This would relativise the current asymmetry between uniform European monetary policy and much less closely integrated economic and budget policies.

A Eurozone finance minister could also chair the European Stability Mechanism – or a European monetary fund if the ESM were to develop in that direction. In both cases the Eurozone finance minister would largely share responsibility for Eurozone crisis management with the ECB. Depending on how the funding of the future crisis mechanism was structured, the European finance minister and the European Parliament would – in a potentially strengthened control function – take over tasks from national finance ministers and parliaments. The ESM is currently, as described above, an intergovernmental organisation, whose radius of action is circumscribed by national vetoes.

Finally, a Eurozone finance minister could assume the task of representing the Eurozone externally in economic and budgetary affairs. At present the ECB, in its responsibility for the currency, represents EMU in international forums and institutions. But there is no unified external representation on other economic policy matters; this has to date been fulfilled partly by a representative of the European Commission, but also by representatives of national governments.

Institutional anchoring

The European finance minister would ideally be a member of the European Commission, as vice-president for economic and financial affairs, and would strengthen its executive role. At the same time, he or she could be made chair of the Eurogroup and the European Stability Mechanism (ESM) for the duration of the Commission’s mandate. The European finance minister would work closely with the European Fiscal Board, which was created to support the application of the Stability Pact (also in cooperation with national fiscal councils), and advise on questions of the direction of budget policy in the Eurozone. If a substantial deepening of the Eurozone were to occur, the tasks of the Eurogroup would change over time, and with them the weight of the Eurozone finance minister – for example if Ecofin’s formal decision-making powers were transferred to the Eurogroup.

By combining the Commission post and the Eurogroup chair, the Eurozone finance minister would contribute to cohesion within the EU and the Eurozone because he or she would also be responsible for internal market affairs. The dual role of Commission vice-president and Eurogroup chair could be regulated through an inter-institutional agreement. The Member States would appoint the finance minister as chair of the ESM (which is located outside the EU Treaty framework). If the finance minister combined all three functions, he or she would have to be appointed simultaneously by the President of the European Commission and by the Member States of the EU (in the guise of the European Council). The European Parliament should ratify the appointment. Council, Commission and European Parliament should be able to force the finance minister to resign through a vote of no confidence.

Certain tasks of a Eurozone finance minister would require parliamentary control, especially the management of a possible Eurozone budget and an enhanced ESM. The specific arrangements for parliamentary control would depend on how the two instruments are structured on the revenue side. A Eurozone budget with European revenue sources would need to be scrutinised by a sub-group of the European Parliament. If, on the other hand, the ESM continues to be funded by national contributions, control should lie with national parliaments.

Strengthening parliamentary control

The discussion about a Eurozone finance minister, possibly equipped with more Eurozone-wide instruments and resources, thus nurtures the discussion about parliamentary participation because the democratic legitimacy of Eurozone decisions as a whole needs to be increased. But the minor role of the European Parliament in the development of an EU anti-crisis strategy and in the ongoing economic governance of the Eurozone – as described above – remains an issue (quite apart from the finance minister discussion) and is regarded as a reason for the weakness of its democratic legitimacy.

In order to enhance parliamentary control, especially in the event of the appointment of a European finance minister strengthening the executive and granting it new instruments, three different approaches are conceivable.

The most far-reaching form would be the creation of a Eurozone parliament as a new institution exercising parliamentary influence and control in matters of legislation and coordination affecting the Eurozone.10 If a Eurozone parliament were actually to be created, the line dividing the Eurozone and the EU-28 would be very clear. There would be a danger of undermining the coherence of policies for the internal market and the EU-28. Much more promising and in the meantime more visible in the discussion is a second approach: The idea of founding a Eurozone committee within the European Parliament, for example as a subcommittee of the ECON Committee.11 Here, only MEPs from Eurozone states would have full voting rights in areas like fiscal policy12 and full rights of control over the Banking Union and the ESM.13 MEPs from non-Eurozone states could attend, but would have no vote.

Thirdly there is a proposal to include national parliamentarians in the parliamentary representation of the Eurozone. Enderlein and Haas propose a joint committee of European and national deputies to exercise democratic control over the investment spending of a future European finance minister and European monetary fund.14 This would account for the fact that these institutions are located at the interface between supranational and intergovernmental politics and have direct repercussions on national budgets. A parliamentary representation of national and European parliamentarians could also participate in economic and budgetary coordination. The prospective benefit of such a step would be not only to locate European objectives within a more democratic process in order to counteract the preponderance of technocratic decisions in the current governance framework. Over time, it could also strengthen insight into European interdependencies, especially among national parliamentarians, and deepen their understanding of developments in other Member States. They would also be integrated earlier and more closely into the coordination process, which could strengthen the application of rule-based coordination.

OUTLOOK

In view of the aforementioned governance problems, the institutional structures of the Eurozone need to be developed and improved. In a first step, the influence of the European Parliament could be further expanded through informal channels, and national parliamentarians integrated in the process. The European Parliament has long been demanding stronger democratic legitimation of the process for coordinating national budget and economic policies. Further steps, such as the introduction of a Eurozone finance minister with a dual role as Eurogroup chair and Commission vice-president, could be implemented through inter-institutional agreements.

In order to equip a finance minister with far-reaching new powers, Treaty amendments may, however, be required (see Chapter 7 by Franz C. Mayer). This would apply for example if the finance minister was given the right to intervene in national political decisions or the power to manage a Eurozone budget. This transfer of powers could occur in the form of an amendment to the existing EU Treaty. A Eurozone Treaty would also be conceivable, affecting only the Eurozone states and requiring only their ratification.15 In the course of such Treaty amendments, the ESM, which was set up on the basis of an intergovernmental Treaty, could be developed towards a European monetary fund. It could, like the IMF, take on additional tasks such as guaranteeing currency stability, promoting economic cooperation, and stimulating growth and employment in the various Member States.

The obvious window for further-reaching reforms begins after the German Bundestag elections in 2017, by which time France will also have elected a new president and parliament. But concrete proposals should be drafted without delay. The Brexit referendum led to a crisis of confidence in the markets, affecting not only the United Kingdom and the British pound, but also the Eurozone. It cannot be excluded that heightened pressure on the European periphery will persist and could increase – in particular in view of the political uncertainty in certain Member States. If the markets test the resilience of the Euro in this manner, the central Eurozone governments should issue a strong political statement of their commitment to preserving and developing the Eurozone.

In order to find broad support within the Eurozone, an institutional reform proposal would have to both take into account the concerns of those states that prioritise rule-based coordination (with less financial solidarity and risksharing) and respect the interests of those members which believe that the Eurozone can only operate successfully with greater risk-sharing. Transferring rights of intervention to the Eurozone level presupposes not only a Treaty amendment, but also ratification referendums in certain Member States. Moreover, the question of compatibility with the national constitution arises in a number of Member States.

The future relationship between Eurozone states and non-members will depend not only on the willingness of the Eurozone to integrate, but also on the extent disintegration will proceed. The decision of the UK to leave the EU may have political repercussions in other EU Member States. Not only the UK, but also the EU risks suffering the consequences of Brexit in political, economic and financial terms. From the Eurozone perspective, this situation increases the necessity and improves the political chances of pursuing the deepening of Economic and Monetary Union. Only as such can it become more resilient and create better preconditions for growth and employment.

The future EU will in all likelihood be increasingly differentiated. For reasons of democratic legitimacy as well as economic efficiency, the Eurozone needs to be developed as a strongly integrated and institutionalised core.

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