COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE EUROPEAN CENTRAL BANK Deepening Europe’s Economic and Monetary Union: Taking stock four years after the Five Presidents’ Report European Commission's contribution to the Euro Summit on 21 June 2019
Date: 2019-06-12
Institutions: European Commission, Secretariat-General
Subjects: Economic and Monetary Union, European Stability Mechanism, capital markets union, competitiveness, economic and social cohesion, economic convergence, economic growth, economic situation, economic stabilisation, euro

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 12.6.2019 COM(2019) 279 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL AND THE EUROPEAN CENTRAL BANK Deepening Europe’s Economic and Monetary Union: Taking stock four years after the Five Presidents’ Report           European Commission's contribution to the Euro Summit on 21 June 2019  
 
 
1.  INTRODUCTION  

On 21 June 2019,  EU  Leaders will meet  in  Brussels  to  review progress  of an agenda that 
lies  at  the  heart  of  the  European  project  and  has  been  central  to  the  EU's  response  to  the 
post-2007 economic, financial and social crises: a deeper and fairer Economic and Monetary 
Union.  

When the global crisis hit the EU and the euro area a decade ago, Europe was soon faced 
with  a  rapid  worsening  of  its  economic  and  social  situation,  the  worst  since  the  Second 
World War. A financial crisis quickly unfolded into an economic and sovereign debt crisis 
in the euro area. The EU was confronted with two major challenges. First, in the short term, 
it  had  to  preserve  the  stability  and  integrity  of  the  euro  area  and  tackle  unprecedented 
economic and social dislocations. Second, it had to design and launch an ambitious project 
addressing  vulnerabilities  in  the  architecture  of  the  single  currency  area  to  ensure  its 
viability in the longer term.  

Since  then,  important  progress  has  been  made  on  both  fronts.  The  European  economy  is 
now  growing  for  the  seventh  consecutive  year  and  is  set  to  continue  growing  next  year. 
Employment  is  at  record  high  and  unemployment  at  record  low.  The  economies  of  the 
Member States are converging again. The overall stability and integrity of the euro area has 
been strengthened, the Banking Union has been created and the architecture of the euro area 
has  been  significantly  enhanced.  That  progress  required  strong  leadership  and  major 
decisions.  The  Five  Presidents’  Report1  of  June  2015  gave  a  strong  steer.  Deepening 
Europe’s Economic  and  Monetary Union  was  also  one of the ten priorities set  out  by this 
Commission at the beginning of its mandate2.  

Figure 1: Key facts and figures for the EU and the euro area 

The euro 

  75% of the citizens support the euro in 2019 compared to 67% when this Commission took office 

  Around 60 countries in the world are either using, will use or link their currency to the euro  

 Progress on the economic situation 

  13.4 million jobs have been created in the EU since the start of the Juncker Commission 

  The unemployment rate in the EU, at 6.4% in April 2019, is the lowest rate recorded since the start of 

the century, when harmonised data started being recorded for all EU Member States 

  Youth unemployment in the EU decreased from 21.7% in 2014 to 14.2% in April 2019 in the EU 

1  ‘The Five Presidents’ Report: Completing Europe's Economic and Monetary Union’, by: Jean-Claude Juncker in 
close  cooperation  with  Donald  Tusk,  Jeroen  Dijsselbloem,  Mario  Draghi  and  Martin  Schulz,  22.06.2015.  The 
report  was  preceded  by  an  ‘Analytical  Note  on  the  Economic  and  Monetary  Union  (EMU)’  by  Jean-Claude 
Juncker,  Donald  Tusk,  Jeroen  Dijsselbloem,  Mario  Draghi,  discussed  at  the  informal  European  Council  on  12 
February 2015. 

2  ‘A New Start for Europe: My Agenda for Jobs, Growth, Fairness and Democratic Change’ – Political Guidelines 

for the next European Commission, 15.7.2014, President Juncker. 

1 

 
                                                           
  The EU economy has enjoyed 7 years of uninterrupted growth 

  Wages  declined  in  the  aftermath  of  the  crisis,  but  have  grown  in  particular  since  2017.  Wages  per 
employee have increased by around 10% in both the EU and in the euro area between 2014 and 2019 

While  the  crisis  gave  a  strong  momentum  to  reform,  the  political  will  to  push  towards 
completing the Economic and Monetary Union has slowed somewhat, against the backdrop 
of  a  more  favourable  economic  context.  As  a  result,  and  in  spite  of  undeniable 
improvements,  important  gaps  remain  in  the  architecture  of  the  Economic  and  Monetary 
Union, which ultimately weigh on the international attractiveness of the euro and the EU's 
capacity  to  deliver  jobs,  economic  growth,  social  fairness  and  macroeconomic  stability. 
Following extensive consultations3, the Commission presented in December 2017 a roadmap 
and a series of proposals to address the remaining gaps4. 

At  the  Euro  Summit  of  June  2018  (held  in  inclusive  format  at  27),  Leaders  mandated  the 
Eurogroup to work on a number of issues in view of reaching an agreement at the December 
2018  Euro  Summit.  At  that  occasion,  Leaders  launched  a  fresh  attempt  to  advance  on 
crucial  issues,  notably  (i)  implementing  the  common  backstop  for  the  Single  Resolution 
Fund,  agreed  in  principle  already  in  20125,  (ii)  strengthening  the  role  of  the  European 
Stability Mechanism, (iii) defining the next steps towards the establishment of a European 
Deposit  Insurance  Scheme,  (iv)  outlining  the  design  of  a  budgetary  instrument  for 
convergence and competitiveness for the euro area as part of the EU budget, and (v) taking 
forward  work  aimed  to  strengthen  the  international  role  of  the  euro.  While  some  progress 
has been made, all those work strands still remain to be completed.  

Almost  exactly  four  years  after  the  publication  of  the  Five  Presidents’  Report,  this 
Communication is  taking stock of the progress  towards a deeper and fairer Economic and 
Monetary Union, in light of the overall economic context. The sustained economic recovery 
in  the  euro  area  has  recently  shown  certain  signs  of  weakness,  exacerbated  by  a  more 
complex  geopolitical  context  and  trade  tensions.  Monetary  policy  has  been  heavily 
mobilised  in  the  past  several  years  in  support  of  growth.  Fiscal  policy  has  turned  mildly 
supportive in the euro area as a whole, but the room for manoeuvre remains limited in high 
debt countries. The capacity of our economies to withstand crises and bounce  forward and 
to deliver long-term income growth and social fairness will depend in large parts on sound 
national  policies  and  institutions,  on  the  resilience  of  domestic  economic  and  social 
structures and the quality of public finances.  

In addition, given the close integration of our economies, particularly within the euro area, 
which accounts for 85% of the gross domestic product of the EU27, the ability to fare well 
and  grow  again  will  ultimately  also  depend  on  how  resilient  the  construction  of  Europe’s 
Economic and Monetary Union will be. The future of the Economic and Monetary Union is 

3  Reflection Paper on the deepening of the Economic and Monetary Union, 31.05.2017, European Commission. 
4 In his State of the Union address on 13 September 2017, President Juncker unequivocally stated ‘The euro is meant 
to be the single currency of the European Union as a whole’ as required by the Treaty. Since then, Bulgaria (the 
currency of which is already pegged to the euro) has applied for close cooperation with the European Central Bank 
and  announced  a  number  of  prior  commitments  in  July  2018  to  pave  the  way  for  ERMII  membership,  while 
Croatia  has  just  submitted  its  request  for  close  cooperation  with  the  European  Central  Bank  and  is  expected  to 
apply for joining Banking Union soon. 

5  A  backstop  to  the  Single  Resolution  Mechanism  was  already  envisaged  in  the  conclusions  of  the  European 

Council of December 2012. 

2 

 
                                                           
therefore not just a matter of concern for countries fully participating in the monetary union, 
but  for  the  EU  as  a  whole  and  in  particular  for  countries  that  will  adopt  the  euro  going 
forward6. 

An assessment of what has already been achieved is a way of collectively focussing minds. 
While  sensitivities  and  diverging  views  on  how  to  move  forward  with  the  Economic  and 
Monetary  Union  are  well  known,  they  should  not  prevent  us  from  reaching  compromises. 
The hard-won achievements reached over the past 10 years are at stake. It is time to move 
away from entrenched views and to revive our collective ambition. 

2.  WHERE WE COME FROM 

In the wake of the financial and debt crises, as one of the first major steps, the euro area was 
equipped  with  crisis  management  mechanisms  supporting  governments  that  lose  market 
access  at  sustainable  interest  rates.  The  European  Stability  Mechanism  can  now  provide 
financial  assistance  to  euro-area  Member  States  experiencing  or  threatened  by  severe 
financing problems, with an overall firepower of EUR 500 billion.  

Second, key elements  of the Banking Union have been put  in  place in  order to  strengthen 
the  financial  sector,  weaken  the  link  between  banks  and  their  sovereigns,  limit  public 
bailouts  of  banks  and  overcome  the  disruptive  effects  of  regulatory  and  supervisory 
fragmentation along national borders. The Single Rulebook for banks provides a single set 
of prudential rules applicable throughout the EU. It also acts as a foundation for the single 
market in banking. The Single Supervisory Mechanism oversees the most significant banks 
in  the  Banking  Union.  In  case  a  significant  bank  fails  and  its  resolution  is  in  the  public 
interest,  it is  resolved centrally by the Single Resolution  Mechanism in  accordance with  a 
consistent set of rules. 

Third, the progress  on Capital  Markets  Union contributes to  the resilience of the financial 
system  and  to  risk  reduction  via  private  risk  sharing.  It  makes  it  easier  for  companies  to 
access  capital  and  for  individuals  to  invest  and  diversify  their  savings  in  new  ways.  An 
effective  insolvency  framework  is  an  essential  part  of  an  adaptive  and  growth-friendly 
business  environment  and  as  such  a  critical  element  of  a  well-functioning  Economic  and 
Monetary  Union.  The  EU  made  substantial  progress  in  recent  years  to  improve  the 
insolvency  framework;  for  instance,  the  European  Parliament  and  the  Council  recently 
reached a political agreement on a directive7, which will give entrepreneurs the opportunity 
of  a  fresh  start  in  case  of  a  business  failure  and  will  improve  the  effectiveness  of 
restructuring and insolvency procedures. 

Fourth,  the  EU's  macroeconomic  and  fiscal  surveillance  of  Member  States  has  been 
significantly  strengthened  with  the  introduction  of  the  Macroeconomic  Imbalances 
Procedure, with enhanced national fiscal frameworks, and with a reform of the Stability and 
Growth  Pact,  the  set  of  rules  designed  to  ensure  that  Member  States  pursue  sound  fiscal 
policies. All new elements have been embedded in the European Semester, the EU’s process 
for economic policy coordination. Two points deserve to be highlighted: Member States are 
now required to submit their draft budgetary plans for an assessment at the EU level before 

6  COM(2017)  821.  Communication  from  the  Commission  -  Further  steps  towards  completing  Europe’s 

Economic and Monetary Union: a roadmap.  

7  COM(2016) 723. Proposal for a directive on preventive restructuring frameworks, second chance and measures to 

increase the efficiency of restructuring, insolvency and discharge procedures. 

3 

 
                                                           
they are adopted nationally, and policy coordination looks beyond individual Member States 
by taking into account matters that are relevant for the euro area as a whole.  

The main institutional and procedural  innovations have been complemented by  additional, 
more  targeted  improvements  in  the  governance  framework:  The  European  Semester  has 
been  revamped  and  alongside  the  coordination  and  monitoring  of  national  economic 
policies, greater attention is now paid to the challenges of the euro area as a whole and to 
fostering economic and social convergence. The Commission has given guidance on the use 
of flexibility within the rules of the Stability and Growth Pact to support economic growth 
and  facilitate  reforms  and  investment,  in  order  to  achieve  a  better  balance  between 
stabilisation  and  sustainability  needs  of  Member  States8.  The  additional  breathing  space 
allowed by the flexibility under the Stability and Growth Pact is estimated to have boosted 
the EU’s gross domestic product by 0.8% over the last four years and resulted in around 1.5 
additional million jobs. The Investment Plan for Europe (the ‘Juncker Plan’) was launched 
in addition to the European structural and investment funds. The EUR 400 billion mobilised 
via the new instrument are estimated to have increased the EU’s gross domestic product by 
0.6% and created 750 000 jobs9. 

The  Commission  also  brought  to  the  fore  social  considerations  by  proposing  a  European 
Pillar of Social Rights,  proclaimed by the other  EU  Institutions,  and mainstreaming social 
priorities in the European Semester. The Commission also developed, in consultation with 
Member  States,  benchmarking  frameworks  to  support  convergence  in  a  number  of  policy 
areas in the employment and social field. To inform and support the process of reforms at 
national level, the Council adopted a  Recommendation for euro-area Member States to set 
up  advisory  National  Productivity  Boards.  Finally,  the  Commission  set  up  a  Structural 
Reform Support Service to pool expertise from across Europe and provide technical support 
to Member States.  

In the first months of its mandate, the Juncker Commission had to deal with a renewed crisis 
when Greece failed to complete its second economic adjustment programme and the danger 
of a ‘Grexit’ became real for several weeks. The Commission helped prepare the ground for 
a  new  Stability  Support  Programme  that  was  agreed  at  the  July  2015  Euro  Summit.  The 
Commission also designed a plan to help Greece stabilise its economy and maximise the use 
of EU funds to boost jobs, growth and investment. The EU mobilised up to EUR 35 billion 
for Greece under various funding programmes in 2014-2020, which triggered an estimated 
2% increase of the country’s gross domestic product. At a critical juncture in July 2015, the 
Commission, through a short-term loan, helped mobilise EUR 7 billion in bridge financing 
under the European Financial Stabilisation Mechanism, effectively preventing Greece from 
crashing out  of the euro area by  accident10.  In August  2018, Greece successfully emerged 
from the three-year Stability Support Programme, which had provided a total of EUR 61.9 
billion in loans based on the implementation of a comprehensive and unprecedented reform 

8  COM (2015) 12. Making the best use of the flexibility within the existing rules of the Stability and Growth Pact. 
9  Figures in this paragraph are Commission estimates; see also The State of the Union address by President Juncker, 
12 September 2018, and Commission contribution to the informal EU27 leaders' meeting in Sibiu (Romania) on 9 
May 2019. 

10 On  17  July  2015,  the  Council  adopted  a  decision  granting  short  term  financial  assistance  to  Greece  under  the 
European Financial Stabilisation Mechanism. The short term financial assistance allowed the country to clear its 
arrears  with  the  International Monetary  Fund  and  the  Bank of  Greece  and  to  repay  the  European  Central  Bank, 
until Greece would start receiving financing under a new programme from the European Stability Mechanism. 

4 

 
                                                           
programme. This helped Greece anchor its place firmly at the heart of the EU and the euro 
area and allowed the EU to leave the remains of the crisis behind it. 

Figure 2: A strengthened toolbox 

5 

 
 
The European Central Bank has played a crucial role in restoring the confidence in the euro 
area.  Since  the  onset  of  the  2008  global  financial  crisis  and  the  subsequent  euro-area 
sovereign  debt  crisis,  the  monetary  policy  measures  of  the  European  Central  Bank  have 
contributed  significantly  to  improving  financial  conditions  for  companies  and  households, 
and  to  higher  economic  growth  and  inflation  in  the  euro  area.  These  measures,  taken  to 
maintain  price  stability,  include  very  low  -  and  even  negative  -  interest  rates,  offering 
refinancing  operations  with  long  maturities  to  banks,  conditional  liquidity  insurance  via 
potential outright purchases of sovereign bonds and the purchase and holding of private and 
public  sector  bonds.  Lending  rates  for  euro  area  firms  and  households  remained  close  to 
their historical  lows,  and growth in  bank lending volumes continued their gradual upward 
trend. This supported the economic expansion, evolving from a fragile and uneven recovery 
into an ongoing  expansion, while deflationary  risks have largely disappeared.  Considering 
all the monetary policy measures taken between mid-2014 and those decided upon in June 
2018, the overall impact on inflation and the growth rate of real gross domestic product in 
the euro area is estimated to be, in both cases, around 1.9% cumulatively between 2016 and 
202011. 

Overall, the EU has taken decisive actions to address many of the gaps and shortcomings of 
the original architecture  of the Economic  and Monetary Union.  As illustrated in  Figure 2, 
the toolbox has been reinforced.  

In  parallel,  market  confidence  has  been  regained.  Government  bond  spreads  gauge  the 
perceived risks by investors. Figure 3 highlights  the substantial  differences  in  government 
bond yields that existed before the introduction of the euro, how these differences virtually 
disappeared following the introduction of the euro, their abrupt widening in the aftermath of 
the crisis and their progressive decline since 2012, with notable differences across countries. 
While the assessment of market participants may not always be fully rational, the evolution 
of government  spreads  nevertheless provides some indication  of the credibility of existing 
institutional  settings  and  current  economic  policies  at  both  the  European  and  the  national 
level12. 

11 European Central Bank, Economic Bulletin, March 2019.  
12 These aspects were already flagged in the ‘Report on economic and monetary union in the European Community’, 
1989, prepared by the Committee for the study of economic and monetary union chaired by Mr Jacques Delors. 
See  for  instance:  ‘To  some  extent  market  forces  can  exert  a  disciplinary  influence.  […]  However,  experience 
suggests that market perceptions do not necessarily provide strong and compelling signals […]’. 

6 

 
                                                           
Figure 3: Confidence in euro area sovereigns largely regained 

14

12

10

8

6

4

2

0

-2

Long-term government bond yields: spread with respect to 
Germany  
percentage points 

0
8
n
a
J

1
8
b
e
F

2
8
r
a

M

3
8
r
p
A

4
8
y
a
M

5
8
n
u
J

6
8

l
u
J

7
8
g
u
A

8
8
p
e
S

9
8

t
c
O

0
9
v
o
N

1
9

c
e
D

3
9
n
a
J

4
9
b
e
F

5
9
r
a

M

6
9
r
p
A

7
9
y
a
M

8
9
n
u
J

9
9

l
u
J

0
0
g
u
A

1
0
p
e
S

2
0

t
c
O

3
0
v
o
N

4
0
c
e
D

6
0
n
a
J

7
0
b
e
F

8
0
r
a

M

9
0
r
p
A

0
1
y
a
M

1
1
n
u
J

2
1
l
u
J

3
1
g
u
A

4
1
p
e
S

5
1

t
c
O

6
1
v
o
N

7
1
c
e
D

9
1
n
a
J

Belgium

Spain

France

Italy

Netherlands

Source: Bloomberg 

3.  WHERE WE STAND 

The  results  achieved  over  recent  years  are  noteworthy,  both  from  an  institutional  and 
economic  perspective.  Today,  the  set  of  rules  and  institutions  underpinning  the  Economic 
and Monetary Union bear little resemblance to the skeleton of twenty years ago. Moreover, 
the  economic  situation  has  significantly  improved  and  the  legacies  of  the  financial  and 
sovereign debt  crises have significantly  receded, even if it took too much time to heal  the 
social scars and progress is still uneven across Europe.  

Despite undeniable achievements, more work is needed. Important elements are still missing 
in the overall construction of Europe’s Economic and Monetary Union as laid down in the 
Five Presidents’ Report of 2015, the blueprint that has guided the Commission’s work over 
the past four years.  

The December 2018 Euro Summit was the most recent attempt to provide a renewed push 
on  immediate  deliverables.  Since  January  2019,  the  discussions  among  the  euro-area 
Member States on the implementation of those political agreements have been taking place 
in the Eurogroup and other partly intergovernmental forums, in particular on the Budgetary 
Instrument  for  Convergence  and  Competitiveness13,  the  reform  of  the  European  Stability 
Mechanism  and  the  future  of  the  Banking  Union.  The  Commission  has  played  an  active 
role,  in  particular  by  providing  technical  expertise  to  foster  progress.  The  Commission’s 
effort also aims to ensure the emerging political compromises are consistent with the EU’s 
legal  framework  and  do  not  prejudge  possible  future  changes  to  that  framework,  in 

13 Discussions on the Budgetary Instrument for Convergence and Competitiveness took place in the inclusive format 

of the Eurogroup Working Group, i.e. the EU at 27.  

7 

 
 
 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
particular  with  regard  to  the  prudential  and  resolution  legislation  relating  to  banks,  the 
future  integration  of  the  European  Stability  Mechanism  into  EU  law,  and  the  rules 
governing  economic  policy  coordination,  fiscal  and  macroeconomic  surveillance  and 
financial stability.  

Budgetary Instrument for Convergence and Competitiveness for the euro area 

The  Budgetary  Instrument  for  Convergence  and  Competitiveness  for  the  euro  area  will 
promote  cohesion  within  the  Union  by  strengthening  the  resilience  of  the  Economic  and 
Monetary Union. The primary objective is to support structural reforms and investment in 
euro-area Member States with a view to enhancing national economic and social structures 
that help absorb and adapt to economic disruptions. It will be complementary to existing EU 
funds. 

Right  from  the  start  and  in  line  with  the  indications  by  the  Leaders,  the  Commission 
proposal  for  a  Reform  Support  Programme  of  May  2018  has  been  the  basis  for  the 
discussions among euro-area Member States14. Discussions have been very productive and 
good  progress  has  been  made;  an  agreement  on  the  main  features  of  a  future  Budgetary 
Instrument for Convergence and Competitiveness is within reach. 

The  budgetary  instrument  would  be  aligned  with  the  European  Semester,  the  EU’s  well-
established cycle of economic policy coordination. Euro-area Member States would submit, 
on a voluntary basis, duly substantiated and coherent proposals for investment and reforms, 
which would be assessed by the Commission based on transparent criteria. Financial support 
would  be  made  available  in  instalments  subject  to  achieving  agreed  milestones.  It  would 
consist of direct financial contributions and could also be used by euro-area Member States 
under the InvestEU programme.  

The euro-area Member States meeting within the Council and the Eurogroup/Euro Summit 
would provide strategic orientation and guidance based on the Council recommendation on 
the  economic  policy  of  the  euro  area.  In  order  to  set  up  this  governance  framework,  the 
Commission  stands  ready  to  propose  a  new  regulation  on  the  basis  of  Article  136  of  the 
Treaty in full respect of the prerogatives of the EU and the Commission as regards budget 
and programme implementation.  

The new budgetary instrument is  planned to  be part of the EU budget  and its size will be 
determined  in  the  context  of  the  negotiations  on  the  Multiannual  Financial  Framework 
2021-2027  taking  into  account  the  implications  for  non  euro-area  Member  States. 
Contributions  from  the  EU  budget  could  be  complemented  by  additional  financing  via 
external assigned revenues on the basis of an intergovernmental agreement.  

European Stability Mechanism 

The  establishment  of  the  European  Stability  Mechanism  during  the  crisis  was  a  major 
milestone on the way towards a more stable Economic and Monetary Union. In due course, 
it  should  be  included  in  the  EU  legal  framework,  as  proposed  by  the  Commission  in 
December  201715.  The  ongoing  revision  of  the  Treaty  establishing  the  European  Stability 
Mechanism, as an intermediate solution, is meant to further strengthen crisis prevention and 
resolution in the euro area. It should neither duplicate tasks with EU institutions nor add to 
the complexity of the economic surveillance framework. In that regard, the Commission and 

14 COM(2018) 391. Proposal for a Regulation on the establishment of the Reform Support Programme. 
15 COM(2017) 827. Proposal for a Council Regulation on the establishment of the European Monetary Fund. 

8 

 
                                                           
the  European  Stability  Mechanism  reached  a  common  understanding  in  2018  on  future 
cooperation to clarify their respective roles16. 

The  planned  reform  of  the  European  Stability  Mechanism  includes  a  revision  of  the 
precautionary financial instruments that are meant to support countries with sound economic 
fundamentals which could be affected by an adverse shock beyond their control. Clarifying 
access  conditions  for  such  instruments  is  crucial  as  it  ensures  transparency  and  guides 
expectations.  At  the  same  time,  eligibility  conditions  should  not  defeat  the  purpose  of 
precautionary  instruments,  should  be  consistent  with  those  required  under  the  EU 
surveillance framework and should be designed in a way to respect the competences of the 
EU institutions.  

It has been agreed that the European Stability Mechanism will provide a common backstop 
to the Single Resolution Fund in the form of a credit line. The Leaders agreed to introduce 
the backstop as of 2020 and by 2023 at the latest. As a last resort, the common backstop will 
support  effective  and  credible  bank  crises  management  within  the  Single  Resolution 
Mechanism,  and  will  be  repaid  via  contributions  from  the  European  banking  sector.  To 
ensure  a  credible  resolution  framework  of  banks,  the  agreement  on  the  common  backstop 
needs  to  ensure  that  resources  will  be  made  available  swiftly.  In  that  regard,  short  time 
limits  for  decision-making  (12/24  hours)  are  essential,  together  with  an  emergency  voting 
procedure.  In  addition,  it  is  important  that  the  responsibilities  of  the  European  Stability 
Mechanism  are  clearly  defined  and  do  not  overlap  or  create  frictions  with  the  EU 
institutions  and  bodies  that  have  been  tasked  to  supervise  banks  or  manage  bank  crises. 
Most importantly, the reform of the Treaty establishing the European Stability Mechanism 
must not create obstacles to future amendments of EU legislation, which would give rise to 
fundamental  problems  affecting  the  autonomy  of  the  EU  legal  order.  The  EU’s  banking 
legislation  must  remain  open  to  further  developments  in  accordance  with  the  Community 
method to adjust to changing market circumstances and complete the Banking Union.  

Banking Union 

Today  the  EU  banking  sector  is  in  much  better  shape  than  it  was  10  years  ago  and  a 
significant  amount  of  risk-reduction  has  taken  place.  Overall,  banks  are  better  capitalised 
and less leveraged, making them better prepared to withstand economic shocks.  Important 
strides  have  been  made  in  reducing  the  existing  stock  of  non-performing  loans  alongside 
determined  action  to  prevent  a  renewed  build-up  in  the  future  and  the  level  of  non-
performing loans are approaching pre-crisis levels. While the stock of non-performing loans 
remains  high  in  some  Member  States,  significant  progress  is  being  made.  All  relevant 
stakeholders need to uphold those efforts17.  

16 https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-financial-

assistance/loan-programmes/european-stability-mechanism-esm_en.  

17  The  fourth  progress  report  on  the  reduction  of  non-performing  loans  published  alongside  this 

Communication documents progress with risk reduction. 

9 

 
                                                           
Figure 4: Non-performing loans have significantly declined 

Recently agreed legislation will reduce risk further and enhance further the resilience of the 
European  banking  sector.  In  particular,  the  Regulation  on  non-performing  loans18  adopted 
by  the  European  Parliament  and  the  Council  in  April  2019  introduces  minimum  levels  of 
loan  loss  coverage  for  new  non-performing  loans  (the  ‘statutory  prudential  backstop’)  in 
order  to  limit  the  risk  of  under-provisioning  of  future  non-performing  loans.  The  banking 
package adopted by the European Parliament and the Council in May 2019 puts in place a 
more robust framework to regulate and supervise banks. Banks are also making progress in 
building  up  their  buffers  to  absorb  losses  in  a  crisis  (Minimum  Requirement  for  Eligible 
Liabilities  -  MREL).  The  Directive  on  the  ranking  of  unsecured  debt  instruments  in 
insolvency19 helps banks to build up sufficient loss-absorbing capacity and helps to ensure 
that  their  critical  functions  can  be  continued  without  public  funds.  Those  measures  mark 
major  milestones  in  the  post-crisis  risk  reduction  agenda  and  implement  international 
standards.  

In December 2018, the Leaders called for the work on the Banking Union to advance, and in 
particular  to  define  a  roadmap  for  starting  political  negotiations  on  the  European  Deposit 
Insurance Scheme, the third and still missing pillar of the Banking Union. Regrettably, the 
impasse that characterised the past several years has persisted and no tangible progress has 
been  made.  Despite  the  significant  risk  reduction  that  has  taken  place  in  the  EU  financial 
sector,  certain  stakeholders  remain  firmly  opposed  to  the  pooling  of  resources  and  risk-
sharing at this point.  

In addition, the Banking Union will not be complete until a robust system for dealing with 
ailing  banks  has  been  put  in  place;  doing  so  requires  having  an  effective  mechanism  to 
provide  sufficient  liquid  assets  to  banks  in  resolution  to  withstand  short  term  deposit 

18  Regulation (EU) 2019/630 as regards minimum loss coverage for non-performing exposures. 
19 Directive (EU) 2017/2399 as regards the ranking of unsecured debt instruments in insolvency hierarchy. 

10 

 
 
                                                           
outflows  which  are  inevitable  in  a  resolution.  Based  on  the  lessons  learnt  from  recent 
resolution cases, any effective solution to provide liquidity in resolution must go beyond a 
limited improvement of existing practices. 

In view of the meeting  of the Euro Summit on 21 June 2019, the Commission invites 
EU Leaders: 

  To reach an agreement on the main features  of the Budgetary Instrument for 
Convergence  and  Competitiveness  with  a  view  to  supporting  a  swift  adoption 
by the European Parliament and the Council. To agree on its size in the context 
of the Multiannual Financial Framework. 

  To  finalise  the  changes  to  the  Treaty  establishing  the  European  Stability 
Mechanism with a view to a swift ratification by the euro-area Member States, 
including  an  operational  and  effective  common  backstop,  the  provision  of 
liquidity  in  resolution  and  active  and  effective  precautionary  instruments.  To 
preserve  a  clear  delineation  of  responsibilities  between  actors  and  the 
possibility  to  adjust  the  EU  Single  Rulebook  for  banks  according  to  the 
Community  method.  To  integrate  the  European  Stability  Mechanism  into  EU 
law over time. 

  To make a renewed effort to complete the Banking Union starting with political 

negotiations on the European Deposit Insurance Scheme. 

  To  accelerate  progress  on  the  Capital  Markets  Union  and  step  up  work  to 

strengthen the international role of the euro. 

4.  THE WAY FORWARD 

Going forward, the Commission will continue to engage with the European Parliament, the 
Member States, the European Central Bank and other bodies to pursue the deepening of the 
Economic and Monetary Union. Besides the early deliverables that should be implemented 
this year, the completion of the Economic and Monetary Union requires a long term vision. 
By  2025,  progress  should  be  made  to  reinforce  the  EU  economic  surveillance  and 
governance  framework  underpinned  by  more  democratic  accountability,  to  set  up  a  fiscal 
stabilisation function and to finalise the implementation of the Banking Union and Capital 
Markets Union. This progress should also be used to further strengthen the international role 
of the euro. 

Economic surveillance 

Good  progress  has  been  made  in  recent  years  in  returning  Member  States  and  the  overall 
euro-area  economy  towards  sound  and  sustainable  growth  paths.  In  particular,  the  fiscal 
deficit and debt of the euro area as a whole have been considerably reduced, and more so 
than  in  other  advanced  economies.  At  the  same  time,  fiscal  positions  are  now  uneven: 
government  debt  levels  are  declining  fast  in  some  Member  States,  in  others  they  are  still 
high. 

The Commission will take stock of the implementation of the framework for economic and 
fiscal surveillance with the review of the two-pack and six-pack legislations, which should 
eventually pave the way towards simpler EU fiscal rules. The review could also provide the 
basis  for  further  improvements  in  the  transparency  and  effectiveness  of  the  policy 
coordination  framework  and  to  reinforce  the  social  dimension  of  the  surveillance 
framework.  

11 

 
 
Institutional strengthening 

New rules should go hand in hand with a streamlining of competences in the Economic and 
Monetary Union. While the European Parliament has already played a more active role in 
recent  years,  its  standing  should  be  further  strengthened.  To  increase  transparency  and 
democratic  accountability,  the  Commission  proposed  in  December  201720  to  appoint  the 
same  person  for  the  positions  of  the  Vice-President  of  the  Commission  in  charge  of  the 
Economic  and  Monetary  Union  and  the  President  of  the  Eurogroup.  This  could  lead  to  a 
significant  improvement  in  accountability  at  the  European  level,  without  transferring 
competences  away  from  Member  States.  This  person,  representing  both  the  euro  area 
Member States and the Commission, would also represent the euro area externally, a critical 
point for the standing of the euro on the global scene. 

institutional  clarity,  recognising 

Ultimately, the European Stability Mechanism should be in  the EU legal framework. This 
would  offer 
the  European  Stability  Mechanism’s 
importance  for  the  Economic  and  Monetary  Union.  Such  an  integration  would  also  allow 
increasing the political and legal accountability of the European Stability Mechanism for the 
execution  of  its  important  tasks  in  euro  area  crisis  management.  Stronger  political 
accountability towards the European Parliament, as well as to the national parliaments of the 
euro-area Member States,  is  indispensable to  ensure that the common euro area interest  is 
adequately taken into account and to achieve long-term acceptance by citizens. In addition, 
the Court of Justice has underlined the responsibility of the Commission as guardian of the 
Treaties  for  monitoring  the  application  of  the  framework  of  the  European  Stability 
Mechanism in practice and for helping to ensure that fundamental rights of individuals are 
fully protected in this context21. 

In addition, a euro-area Treasury could take shape, to access financial markets on behalf of 
its members to fund part of their regular refinancing needs.   The euro-area Treasury could 
bring  together  existing  competences  and  services  that  are  today  scattered  across  different 
institutions  and  bodies,  including  the  European  Stability  Mechanism,  after  its  integration 
into the EU legal framework. 

Fiscal Stabilisation  

One important lesson of the financial and economic crisis was that the current framework is 
ill-equipped  to  tackle  very  large  country-specific  or  euro  area-wide  shocks.  A  common 
stabilisation function would be an important complement to national budgets.  In 2018, the 
Commission made a proposal for a European Investment Stabilisation Function22 to provide 
up to EUR 30 billion in back-to-back loans to stabilise public investment levels in  the event 
of  severe  economic  shocks.  This  proposal  remains  relevant  and  should  be  seen  as  a 
complement to the Budgetary Instrument for Convergence and Competitiveness for the euro 
area.  The  latter  is  meant  to  enhance  a  Member  State’s  growth  potential  and  economic 
resilience    by  implementing  reforms  and  relevant  investment  projects  while  a  common 

20 COM(2017) 823. Communication from the Commission – A European Minister of Economy and Finance. 
21 Judgment of the Court of 20 September 2016, Ledra advertising e.a. v. Commission, joined cases C-8/15 P to C-

10/15 P, ECLI:EU:C:2016:701, para. 55-59 and 67. 

22  COM(2018) 387. Proposal for a Regulation of the European Parliament and of the Council: The establishment of a 

European Investment Stabilisation Function. 

12 

 
                                                           
stabilisation  function  would  help  mitigate  the  impact  of  major  shocks  if  they  hit 
nevertheless. A common unemployment re-insurance scheme could also be considered23.   

Banking Union 

The  journey  towards  a  complete  Banking  Union  requires  further  effort  to  put  in  place  the 
missing  elements  necessary  for  a  thriving  Economic  and  Monetary  Union.  The  Banking 
Union was always intended to consist of three pillars – single supervision, single resolution, 
and  a  single  deposit  insurance  scheme.  Both  the  Single  Supervisory  Mechanism  and  the 
Single  Resolution  Mechanism  are  already  operational.  Time  has  now  come  to  make 
concrete  progress  on  the  third  pillar:  a  common  depositor  protection  mechanism. 
Guaranteeing  deposits  on  a  European  level  would  ensure  that  all  deposits  are  equally 
protected across the Banking Union and thereby strengthen the confidence of depositors and 
mitigate the risk of bank runs. While significant progress has been achieved in harmonising 
the  Single  Rulebook,  more  should  be  done  to  remove  unnecessary  obstacles  to  the  cross-
border integration of the banking system. A Banking Union in its steady state should deliver 
the regulatory frameworks and institutional design necessary to strengthen the resilience and 
competitiveness of the EU banking sector.  

Diversified  banks’  balance  sheets  should  form  the  basis  for  more  effective  private  risk 
sharing and for loosening the feedback-loops between banks and their national sovereigns. 
To this end, the Commission proposed in May 2018 an enabling regulatory framework for 
Sovereign  Bond-Backed  Securities24.  Revising  the  regulatory  treatment  of  sovereign 
exposures could be another way to provide incentives for banks to diversify their holdings 
away from home-sovereign bonds. A careful design and a significant phase-in period would 
be necessary to ensure a smooth transition to the new regime. 

An  appropriate  common  safe  asset  would  strengthen  the  euro  area  and  increase  the 
efficiency  of  the  Economic,  Monetary  and  Financial  Union  through  several  channels, 
including by mitigating the sovereign-banks doom loops. It could spur the development and 
integration  of  capital  markets  by  providing  a  single  benchmark  for  assessing  other  assets 
and  would  facilitate  the  conduct  of  monetary  policy.  A  common  safe  asset  has  also  the 
potential  to  reduce  the  scope  for  destabilising  intra-euro-area  capital  flows  in  times  of 
elevated risk aversion, the so-called flight-to-safety that hurts investment, and to support a 
stronger international role of the euro.  

Changing  the  regulatory  treatment  of  banks’  sovereign  exposures  and  introducing  a 
common safe asset are two measures that raise a number of economic, legal, political and 
institutional questions that will need to be tackled in parallel, in close cooperation with the 
Member States.  

Capital Markets Union 

Together  with  the  Banking  Union,  the  Capital  Markets  Union  supports  a  well-functioning 
Economic and Monetary Union and a strong role of the euro. It ensures more funding and 
asset  diversification  for  companies  and  investors  alike.  A  Capital  Markets  Union  supports 
investment,  economic  growth  and  job  creation  especially  when  the  traditional  credit 
channels  via  banks  are  under  major  stress.  The  Capital  Markets  Union  also  promotes 

23 Commission contribution to the informal EU27 leaders' meeting in Sibiu (Romania) on 9 May 2019. 
24 COM(2018) 339. Proposal for a Regulation on Sovereign bond-backed securities. 

13 

 
                                                           
convergence, as it seeks to remove unnecessary regulatory and non-regulatory barriers to the 
free movement of capital across the Single Market.  

The Capital  Markets  Union  enjoyed strong support  from  the European Parliament  and the 
Member States, as the benefits of wider diversification and better integration of markets are 
well recognised for economic growth and job creation. As a result, 11 out of 13 proposals 
put forward by the Commission as part of its Action Plan and Mid-Term Review have been 
adopted25.  Nonetheless,  in  some  instances,  the  project  has  hit  strong  resistance  from 
Member States  on politically sensitive matters such as more  effective EU supervision and 
tackling excessive national rules in the cross-border provision of services. While the Capital 
Markets  Union  has  continued  to  generate  wide  support  at  the  highest  political  level, 
concrete support on specific legislative files has sometimes been lacking.  

The completion of the Capital Markets Union is essential to guarantee that Europe’s capital 
markets can stand up to the significant internal  and external challenges for the stability of 
the Economic and Monetary Union, as well  as to address new challenges arising from the 
United Kingdom’s departure from the EU. The agreed legislation must now be implemented 
in  full.  Besides  the  recent  achievements,  the  remaining  barriers,  such  as  divergent 
insolvency  regimes  and  ineffective  cross-border  taxation,  have  to  be  tackled  to  ensure  a 
better integration of capital markets in Europe. Determined action is needed also at the level 
of Member States and market participants themselves. In addition, the governance, tools and 
mandates  of  the  European  Supervisory  Authorities  should  continue  to  be  revised  as  the 
Capital  Markets  Union  progresses  to  ensure  that  authorities  are  able  to  address  potential 
risks stemming from the development and integration of capital markets.   

This needs to be complemented by more convergence of supervisory practices, in particular 
to deal with money laundering, which is a continued threat to the reputation and stability of 
the European capital markets and banking sector. The European Parliament and the Council 
agreed recently a package of measures26 to reinforce among others the role of the European 
Banking  Authority  for  purposes  of  combating  money  laundering  and  terrorist  financing. 
While  the  reform,  combined  with  the  forthcoming  application  of  the  fifth  Anti-Money 
Laundering Directive27, will further promote the integrity of the Union's financial system, it 
may not be  enough to  tackle the  full scale of the problem.  Building on the Commission’s 
on-going analysis of recent money laundering scandals in the banking sector, there will be a 
need  to  consider  whether  a  more  unified  body  would  be  more  effective  in  addressing  the 
cross-border aspects of money laundering.  

International role of the euro  

Following  the  publication  of  a  Communication  on  the  international  role  of  the  euro  in 
December  201828,  the  December  2018  Euro  Summit  encouraged  the  Commission  to 
continue working towards developing the international use of the euro. The euro is twenty 
years  young and is the world’s second currency. It remained strong even during the worst 
moments of the financial and sovereign debt crises. At the same time, the global order has 
become  more  multi-polar  with  new  economic  powers,  institutions  and  technologies 

25 COM(2019) 136. Communication from the Commission  - Capital Markets Union: progress on building a single 

market for capital for a strong Economic and Monetary Union. 

26 COM(2017) 536. Proposal of the Commission to reform the European Supervisory Authorities. 
27  Directive  (EU)  2018/843  on  the  prevention  of  the  use  of  the  financial  system  for  the  purposes  of  money 

laundering or terrorist financing. 

28 COM(2018) 796. Communication from the Commission - Towards a stronger international role of the euro. 

14 

 
                                                           
emerging  and  existing  powers  repositioning  themselves.  This  calls  for  strengthening 
Europe’s economic and monetary sovereignty.  

The  Commission  has  engaged  in  active  consultations  with  market  participants,  public  and 
private, over the past months29. There is broad support for reducing dependence on a single 
dominant global currency. Moreover, the euro stands out as the only strong candidate that 
has  all  the  necessary  attributes  of  a  global  currency  that  market  participants  use  already 
today as an alternative to the US dollar. Finally, there is recognition that the EU, through the 
euro,  can  reinforce  its  economic  sovereignty  and  play  a  more  important  global  role  to 
benefit  EU  business  and  consumers  and  contribute  to  international  financial  stability.  The 
completion of the Banking Union and Capital Markets Union is essential in that context, to 
strengthen  the  resilience  and  stability  of  the  euro,  to  promote  deep  and  liquid  equity  and 
debt  markets  and  to  foster  further  financial  market  integration.  The  Commission,  with  the 
European Central Bank, will continue to work with Member States, market participants and 
other  stakeholders  on  actions  to  achieve  a  stronger  role  of  the  euro,  and  calls  upon  the 
European Parliament, the Council and all interested parties to support these efforts. Going 
forward, it is suggested to regularly take stock of progress at political level. 

5.  CONCLUSIONS  

With this Communication, the Commission calls on the European Parliament, the European 
Council,  the  Council,  the  European  Central  Bank  and  all  other  stakeholders  to  continue 
firmly on the path to complete the Economic and Monetary Union.  

In view of the meeting  of the Euro Summit on 21 June 2019, the Commission invites 
EU Leaders: 

  To reach an agreement on the main features  of the Budgetary Instrument for 
Convergence  and  Competitiveness  with  a  view  to  supporting  a  swift  adoption 
by the European Parliament and the Council. To agree on its size in the context 
of the Multiannual Financial Framework. 

  To  finalise  the  changes  to  the  Treaty  establishing  the  European  Stability 
Mechanism with a view to a swift ratification by the euro-area Member States, 
including  an  operational  and  effective  common  backstop,  the  provision  of 
liquidity  in  resolution  and  active  and  effective  precautionary  instruments.  To 
preserve  a  clear  delineation  of  responsibilities  between  actors  and  the 
possibility  to  adjust  the  EU  Single  Rulebook  for  banks  according  to  the 
Community  method.  To  integrate  the  European  Stability  Mechanism  into  EU 
law over time. 

  To make a renewed effort to complete the Banking Union starting with political 

negotiations on the European Deposit Insurance Scheme. 

  To  accelerate  progress  on  the  Capital  Markets  Union  and  step  up  work  to 

strengthen the international role of the euro. 

Further  determined  collective  efforts  will  be  needed  to  advance  on  the  deepening  of  the 
Economic  and  Monetary  Union  and  the  completion  of  the  Banking  and  Capital  Markets 
Union by 2025 at the latest. 

29  SWD(2019)  600.  Commission  Staff  Working  Document  –  ‘Strengthening  the  international  role  of  the  euro. 

Results of consultations’.  

15