By Robert Csehi
Hungary and Poland clearly support the idea of more reliance on intergovernmental solutions to common problems, Slovakia, due to its Eurozone membership, is more open to the idea of further deepening through European institutions. The Czech Republic seems to be caught in the middle, writes Robert Csehi.
Last week, French President, Emmanuel Macron presented anew his ambitious plan to revitalize the European integration process. His reform proposals concerning the Economic and Monetary Union (EMU) are wide-ranging, and have multiple items, such as a common European finance minister or a separate euro area budget, which are likely to trigger resistance from Berlin, other member states, and even EU institutions. Yet, the finishing up of the banking union, and the transformation of the European Stability Mechanism (ESM) into a European Monetary Fund are high on the agenda, and they can easily gain the necessary support in the summer European Council which would then ensure a more crisis-proof currency zone. Even though Macron’s plan is constrained to the euro area, it could have repercussions outside the common currency zone as well. The different approaches of four East-Central European countries (the Czech Republic, Hungary, Poland, and Slovakia, the latter being a member of the euro area as well) making up a regional cooperation called the Visegrad Group or V4, could once again highlight a division within the EU between supranationalists and intergovernmentalists.
As far as the progress on banking union is concerned, all V4 countries seem to be in agreement that it is essential for the stability of the European financial sector to conclude a framework with some kind of a financial backstop. Whether this should take the form of a separate resolution fund with member states’ payments based on a quota, or alternatively can come from the already up-and-running ESM (based on a similar financing scheme), is more contested in the region. Poland which pays closer attention to the different pillars of the banking union is likely to argue that authority should be balanced with responsibility. In other words, situations should be avoided where a potential resolution is financed through a national guarantee scheme, but the actual decision on whether to resolve a particular financial institution comes from the European level. Also, the Polish government might want to avoid creating an asymmetry between euro-ins and outs as was the case with the Single Supervisory Mechanism (SSM) which provides Eurozone states an advantage in decision-making through their board membership. The Czech Republic, which always stresses the need to involve non-euro area member states into the discussion on the further deepening of the Eurozone follows a similar approach. While Prague is also likely to emphasize the role of national authorities in decisions about bank rescues, it is concerned how the ESM could serve as the final backstop in financial turmoil for those members of the banking union that are outside the common currency zone. Slovakia, being a member of the euro area, aims at a fiscally neutral solution when it comes to the financial backstop, however the details are not yet clear. Although Hungary shows little interest in the debate, it could be expected that the Hungarian government, alongside Poland and the Czech Republic, would push for a greater role of national authorities in the resolution mechanism as well. However, it is unlikely that any steps towards a common backstop could take place before major concerns about non-performing loans on the banks’ sheets have been properly addressed. This also affects member states’ position with regards to the planned European Deposit Insurance Scheme (EDIS), which actually divides the V4 region. While all V4 countries seem to highlight the need for risk-reduction, the Czech Republic and Slovakia are more open to the idea of risk-sharing in one form or the other (e.g. safe asset without debt mutualization), which questions the unity of the V4.
A little more controversial is the idea to transform the EU’s bailout fund, the ESM into a European Monetary Fund. However, it is not the idea of an EMF which is contested. For instance, according to the Slovak finance minister, Peter Kazimir, there is an obvious need to convert the current framework into an institution more fitting to the future needs of the EU. The Polish position also reflects the relevance of a long-term perspective and highlights that a revised ESM is key and should be opened up for non-euro area member states as well. How this would affect the quotas and the decision-making process, is rather unclear. In fact, it is the details about this new institution’s power and the potential control mechanisms that would surround its functioning which might raise eyebrows within the East-Central European region. In terms of control, all V4 countries seem to oppose the idea of further involving the European Parliament (EP) as this could only come at the expense of national governments and parliaments. The same approach could be anticipated about a potentially increased role given to the European Commission in the EMF framework, with a possible exception of Slovakia, which, as a small euro area member state, might prove to be less hostile to the idea as it could see an ally in the Commission against bigger member states in the Eurozone. However, within this transformation process, the Polish, and Hungarian governments could even go so far as to argue for the need to actually cut back on the powers of the Commission over fiscal policies and bailouts, and could push for a motion to render fiscal surveillance under the authority of a reformed ESM / newly funded EMF. This would coincide with the aim of these governments to not only de-politicize fiscal and budgetary politics, but also to give more emphasis to intergovernmental as opposed to supranational mechanisms and solutions. As far as the Czech Republic is concerned, the transformation of the ESM into an EMF could give the government an opportunity where it might attempt to renegotiate the terms of Czech contributions to Greece through the current ESM system, something the Babis government holds essential before joining the euro area. In sum, when it comes to the transformation of the ESM into an EMF, there is even less cohesion within V4, as all countries seem to follow a different agenda.
Last, but not least, the most contested idea in Macron’s plan, from the point of view of the V4 group, is the prospect of a separate euro area budget. The Hungarian government outright rejected the idea arguing that it would create a two-speed Europe where those outside the euro area would be labelled as “bad member states”. In general, Hungary and Poland wants to ensure that the Leaders’ Agenda (which also talked about a fiscal capacity for the euro area) does not relegate them to a lower category as member states. The biggest fear is that a euro area budget could mean a decrease in existing funds aimed at lowering regional differences across the EU; an argument which carries much weight especially in light of Brexit. While both Hungary and Poland signaled readiness to contribute more to the common EU budget, they still oppose a further integration of the euro area through a separate fiscal capacity. The Czech Republic is also of the opinion that the euro area should remain as inclusive as possible and that any discussion on its further deepening should be open to non-euro area member as well. Consequently, they look at a separate euro area budget from a rather skeptical point of view as well. Slovakia, on the other hand, as a Eurozone member state does not exclude the creation of some kind of a fiscal capacity that could boost investments and could create further stabilization. This position is driven by Slovakia’s belief that the possibility of a faster, multi-speed euro area integration could not be denied from its members. However, Slovakia’s preference for a deeper euro area is not unconditional, as the government always stresses the importance of fiscal and economic discipline which needs to precede further fiscal integration.
The potential influence of the V4 over the final outcome should not be over-, or underestimated. First, one has to note that the debate about the reform of the euro area, and a greater discussion on the future of the European integration overlap. Consequently, one could expect that non-euro area member states will also formulate stronger positions and try to exert as much control over the results as possible. Although Hungary and Poland clearly support the idea of more reliance on intergovernmental solutions to common problems, Slovakia, due to its Eurozone membership, is more open to the idea of further deepening through European institutions. The Czech Republic seems to be caught in the middle with an open, yet Euroskeptic agenda. Second, the euro area reform discussion runs parallel with other major issues that also reflect a similar division. The negotiations about the post-Brexit multiannual financial framework is likely to reunite V4 countries based on shared interests (i.e. access to funds lowering economic differences), especially in light of a potential plan to reshuffle cohesion funds from East-Central European to Southern member states. However, the attempt to bundle financial tools with value commitments, that speaks indirectly to the ‘rule of law’ challenges, could easily drive a wedge in the V4 cooperation. While Poland and Hungary is likely to argue in favour of the status quo, and a less ‘politicized’ allocation of EU funds, Slovakia and the Czech Republic might be more open to new suggestions. An alternative, the establishment of a closer link between the European Semester and cohesion funds is likely to lead to a similar internal division. Once again, Slovakia and the Czech Republic are most susceptible to the idea, while Poland and Hungary are expected to oppose giving more oversight power to the European Commission. To what extent the latter two countries manage to influence, create and extend a coalition of intergovernmentalists in the debate about the future of the European integration and the euro area is yet to be seen. Nevertheless, other member states, also interested in limiting the powers of supranationalist institutions, cannot be considered as automatic and natural allies in this debate. They could easily find it difficult to share a common platform with countries that are challenged on their value-related decisions.
Robert Csehi is lecturer and researcher at the Bavarian School of Public Policy at the Technical University in Munich