EU Leaders Set to Approve More Work on Euro Budget This Week

(Bloomberg) -- European Union leaders are set to mandate the design of a controversial budget for the euro area as part of a plan to shore up the common currency, according to draft conclusions of their summit on Friday.

Finance ministers from the euro area will be asked to “to work on the design, modalities of implementation and timing of the budgetary instrument,” read the Dec. 11 document seen by Bloomberg. A final compromise on the features of the budget will be prepared by June 2019, it said.

Earlier this month, a long-anticipated push to reform the euro area took shape after all-night discussions among finance ministers in Brussels. While compromises were reached in areas from debt sustainability to the handling of bank failures, the steps fell far short of the sweeping vision of a more integrated bloc outlined by French President Emmanuel Macron last year.

Instead of being used to stabilize economies hit by shocks, as France and other proponents have advocated, the leaders proposed that the tool be used for “competitiveness and convergence” -- namely, helping poorer countries catch up. This marks a win for countries led by the Netherlands that argue that nations should work to build fiscal buffers at home.

The euro budget would be an additional pot of money within the European Union budget for members of the currency bloc that could be tapped under as-yet undefined circumstances. The proposal has pitted staunch advocate France against hawkish countries led by the Netherlands that question whether such a tool is needed in the euro-area’s crisis-fighting arsenal.

EU leaders will also endorse the outline of a permanent lifeline to the euro area’s crisis fund for failing banks, “provided sufficient progress has been made in risk reduction, to be assessed in 2020,” the document said. They will also endorse the planned reform of the European Stability Mechanism, which foresees stronger precautionary tools for countries in need of assistance.

This month, the European Parliament and member states reached a political deal to introduce a raft of new banking regulations, part of the drive to further reduce risks. EU leaders will say they “look forward to the final adoption” of those rules, and call for further progress on measures to develop the region’s capital markets, according to the document.

©2018 Bloomberg L.P.