Résumé: L’UE a adopté d’importantes réformes en matière de réglementation financière et de gouvernance économique, notamment le Paquet finance numérique, le cadre de gestion des crises bancaires et de garantie des dépôts (CMDI), ainsi que le plan de relance NextGenerationEU. Ces mesures visent à renforcer l’Union économique et monétaire (UEM) pour garantir la stabilité financière et la résilience économique de l’Union et de ses États membres. Cependant, des défis subsistent, parmi lesquels figurent en particulier l’achèvement de l’Union bancaire, l’unification des systèmes nationaux de garantie des dépôts et l’établissement d’un équilibre entre les politiques économiques et monétaires. Le succès de ces initiatives dépend de leur mise en œuvre, de la clarification de certaines incertitudes clés, ainsi que de la coopération continue entre États membres.

The European Union (EU) has unveiled a variety of legislative initiatives over the last few years that affect financial regulation. These include the Digital finance package comprising the Digital Operational Resilience Act (DORA), the DLT Pilot Regime, the Markets in Crypto-Assets Regulation (MiCA)), the Artificial Intelligence (AI) Act and the Sustainable finance package, among others.

Last year, following the failure of banks in the United States and Switzerland, the European Commission proposed a reform of the EU’s bank crisis management and deposit insurance framework (CMDI framework). The monetary policy tools of the European Central Bank (ECB) have also changed with the implementation of the Pandemic Emergency Purchase Programme (PEPP) and Transmission Protection Instrument (TPI).

Alongside these developments, the EU has implemented its pandemic recovery programme, NextGenerationEU, while also reforming the Stability and Growth Pact, which places limits on public deficits and national debt. All of this means that reflecting on where the EU’s Economic and Monetary Union now stands is both necessary and urgent.

New challenges

Many of the reforms outlined above came in response to the emergence of new technologies. The Markets in Crypto-Assets Regulation sets tight rules for the provision of services related to cryptocurrencies, which represent a challenge for many organisations at the national level. One partial solution to the regulation of cryptocurrencies could be the EU Supervisory Digital Finance Academy, which aims to develop expertise among financial supervisory authorities to deal with new technologies.

The digital finance package highlights normative conflicts stemming from digitalization as a social and cultural phenomenon. The digital euro, a result of money’s digital transformation, would introduce central bank money in digital form for all electronic payments. Challenges include constitutional limits on imposing negative rates on citizens, handling information content, connections to public finances and banking supervision, and deployment through banks.

Besides new technologies, the EMU focuses on addressing future crises.  Building on the June 2023 legislative package, which introduced instruments such as transition plans to operationalize climate and environmental objectives, the regulatory focus in 2024 extended to encompass ESG ratings and climate-related risks. The idea of an omnibus statute by Ursula von der Leyen may redefine the fragmented legislative framework – or leave its own mark of complexity.

The Silicon Valley Bank collapse highlighted deficiencies in the CMDI framework. Its reform aims to improve resolution and deposit protection for EU banks. CMDI remains under-utilized, facing challenges with banks that are too big to fail but too small to resolve and with medium-sized banks that encounter difficulties in seeking to fulfil the required conditions. In 2022, 47 out of 142 banks could not meet the 8% funding gap requirement. There is no change in the funding approach, but a higher chance of using privately funded safety nets for support, in particular for medium-sized banks.

In February 2024, which signifies the mid-term evaluation, €225 billion of the funding available under the Recovery and Resilience Facility – which is part of NextGenerationEU – has been disbursed so far, with the disbursement of double that amount still pending. The main challenge consists in the need to accelerate implementation by Member States, who self-report progress without Commission verification.

Implications for the European Central Bank

In response to the Public Sector Purchasing Programme discussions, the ECB introduced further crisis instruments, adhering to the limits defined in the Gauweiler and Weiss cases. While the PEPP was pandemic-specific, the future (potential) TPI has a broader, indefinite scope. Although indirect effects on Euro area stability do not alter monetary policy, PEPP reinvestments might struggle to align with the COVID-19 objective of the programme, raising proportionality issues. Economic necessity is another concern, though the ECB’s broad discretionary powers may shield it from significant errors in assessment.

Current developments have sparked debate on the ECB’s independence and its handling of profits and losses. While operating with negative equity poses no legal issues for national central banks, the ECB has advised against it to maintain credibility. One proposal suggests reallocating monetary policy losses from national central banks to the ECB, but large profit transfers might undermine monetary policy’s effectiveness against inflation. Another solution introduces a two-tier reserve requirement system, which can be reduced without significantly impacting central bank procedures.

Impact of Reforms on the Future of EMU

The recent reforms within the EMU will likely mark a significant transformation, enhancing integration while still not addressing Euro area disparities. Designed to strengthen the EU’s role in shaping global norms and developing the Single market, these reforms leverage Article 114 TFEU to fortify the EMU against new technologies and future crises, including climate change and financial instability. The ECB has assumed expanded roles, accompanied by lingering questions that still need to be addressed.

In summary, these reforms provide a potentially strong(er) foundation for the EMU, even if certain issues including the imbalance between economic and monetary integration remain to be tackled. The degree of success of the new rules will depend on their actual implementation and enforcement. Upcoming level 2 acts will have to resolve existing uncertainties and open the way to balance a risk reducing and risk sharing EMU. Current parliamentary discussions on the completion of the Banking Union and the unification of the national Deposit Guarantee Schemes into a single European Deposit Insurance Scheme have relaunched. Although hopes of success are limited amid the absence of consensus amongst the Member States, it is important that the debate on this outstanding issue remains active, and that the potential of further harmonization of national Deposit Guarantee Schemes present be exploited. Also, it will be key to witness how the implementation of the NextGenerationEU programme progresses, and especially how it is articulated with the introduction of the revamped Stability and Growth Pact recently approved by Member States.

These reforms were discussed during an interdisciplinary workshop at the Salzburg Centre of European Union Studies on 22-23 November 2023. This article is based on discussions that took place during the workshop as part of EUCHALLENGES, a Jean Monnet Centre of Excellence co-funded by the European Commission under grant agreement no. 101127539.

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Vanessa Aichstill is a PhD Candidate and Research Assistant at the Salzburg Centre of European Union Studies, University of Salzburg.