Spain wants euro bonds and common unemployment insurance

Madrid throws its support behind further eurozone integration.

MADRID — Spain’s conservative Prime Minister Mariano Rajoy has joined the ranks of those who are demanding a deep overhaul of the eurozone.

Madrid has submitted to the European Commission a proposal for deeper economic integration of the 19 countries using the euro, the economy ministry confirmed Monday. It calls for completing the banking union and implementing euro bonds, an anti-crisis budget, and a common unemployment insurance scheme.

The Commission is due to issue a report about the future of the eurozone in the coming weeks as part of a series of reflection papers debating ideas for Europe in 2025. But Spain is also clearly aligning itself with France’s new President Emmanuel Macron, who went to a skeptical Germany on Monday bearing his campaign message of the need to start discussing reform of the eurozone.

A summary of Spain’s proposal by its economy ministry argued that the architecture of the eurozone has proven vulnerable to economic shocks and that the lack of absorbing mechanisms has resulted in “high unemployment rates in the countries most affected by the crisis.”

“It’s clear that we need to improve the governance of the eurozone,” the country’s foreign minister, Alfonso Dastis, told POLITICO last week. “The banking union will be the key test.”

For starters, Madrid advocates implementing the changes that have already been agreed in relation to the monetary union, that is, a single resolution mechanism for banks and a common deposit insurance scheme. It also proposes “a certain harmonization of the banking system’s rules” to tackle non-performing loans, according to the economy ministry.

Looking further down the road, Spain proposes a common budget for the eurozone that can be used as a “stabilizing tool” but can’t become “a permanent transfer tool,” the summary said. Initially, this common budget could be channeled through an investment mechanism and later, through a common unemployment insurance that complements the national ones.

In the long term, Madrid envisages a “certain degree of debt mutualization” among the euro countries, although Germany has adamantly refused to endorse similar proposals like so-called euro bonds — debt instruments that would be issued by the eurozone as a whole, leading to joint liabilities.

The Spanish government wants mechanisms that would be available in such a fiscal union to allow the EU to force “structural reforms” on the eurozone countries, according to the text.

Rajoy’s cabinet is marketing Spain as a role model proving that painful reforms do work — the country is currently outperforming its peers after an economic crisis that wiped off 10 percent of its GDP — and wants EU oversight on not only how much the countries spend but also on whether they’re implementing reforms to reinvigorate their economies.