Mario Centeno becomes Eurogroup President: What does this mean for EMU?

Ronan Ward16th January 20186min
On Saturday, 13 January, Mario Centeno, Portugal’s Finance Minister became Eurogroup President. What will his Presidency mean for the future of the Eurozone?

Mário_Centeno

On Saturday, 13 January 2018, Mario Centeno, the Portuguese Minister for Finance, assumed his new role as President of the Eurogroup. He replaces Jeroen Dijsselbloem, the former Finance Minister of the Netherlands, who held the position since 2013. Dr Centeno will be the first Eurogroup President from southern Europe and the first from a country which received funding from the ESM.

How was he elected?

As the Presidencies of the European Council, Parliament, Commission and the Council of the European Union are currently held by members of the European People’s Party (EPP), it was expected that the position of Eurogroup President would go to a Party of European Socialists (PES) candidate.

In addition to Dr Centeno, the race for the Presidency was contended by candidates from smaller Eurozone economies, including: Pierre Gramegna (Luxembourg), Peter Kazimir (Slovakia) and Dana Reizniece-Ozola (Latvia). Dr Centeno’s candidature benefited from political calculations in a number of the larger Member States. Spain’s Luis de Guindos did not wish to compete for the job, and the expectation is that he will instead seek the position of ECB Vice-President. Italy’s Pier Carlo Padoan’s chances of election, meanwhile, were inhibited by the upcoming Italian elections. The absence of a coalition deal in Germany meant that their finance minister could not be considered. Bruno Le Maire did not campaign for the position. This may be related to the presence of strong French candidates in the race to become Commission President in 2019.

While Dr. Centeno’s appointment is symbolic to many of a victory for anti-austerity politics, the reality is more complex. He received support from the former German Minister of Finance, Wolfgang Schauble, who played a key role in the crafting of the approach of creditor nations during the crisis. He also received the support of EPP ministers such as Germany’s caretaker Minister of Finance, Peter Altmaier, despite the availability of another PES candidate, Slovakia’s Peter Kazimir, who might have been perceived as a continuation of the status-quo.

Who is Dr Centeno?

Dr Centeno is an economist by profession, with an expertise in labour markets. Prior to his appointment as Portugal’s Minister of Finance in 2015, he was a member of the Commission’s Economic Policy Committee from 2004 to 2013.

Dr Centeno was appointed Minister of Finance in 2015, following Portugal’s exit from its bailout programme in 2014. The Socialist Party won the 2015 Portuguese election following public discontent with fiscally contractionary policies. In government, Dr. Centeno pursued a policy of stimulating consumer demand to improve the economy. The minimum wage was increased, public sector wages were restored (having been cut by 30% in the wake of the crisis) and social security spending was enlarged.

In May 2016, Portugal was granted latitude by the European Commission regarding fiscal rules and avoided fines despite missing budgetary targets under the Fiscal Compact.

The Portuguese economy under Mario Centeno has performed strongly. By 2016 there was sustained economic growth and corporate investment was up by 13%. In 2017 the budget deficit fell to 0.1% and for the first time ever Portugal abided with EU fiscal rules. On 17 December 2017, the country’s bonds were given an investment grade by Fitch Ratings.

 

What might his presidency mean for the Eurozone?

There is a renewed emphasis on reform of the EMU following the formulation of a number of important proposals in recent months. Of particular importance was Jean-Claude Juncker’s State of the Union Address on 13 September 2017, Emmanuel Macron’s Sorbonne speech on 26 September 2017, and the German Finance Ministry’s proposals for an EMF made on 9 October 2017. These have included proposals for an EMF, a Eurozone budget, a Eurozone Finance minister and counter-cyclical budgetary policies.

On 6 December 2017, the Commission, influenced by the previous proposals, produced a roadmap for Completing Europe’s Economic and Monetary Union, which proposed a European Monetary Fund (EMF), budgetary stability instruments and a European Minister of Economy and Finance. On December 15 2017, at the Euro summit, consensus was reached for completion of the Banking Union and the Capital Markets Union but not for proposals such as the Eurozone Finance Minister, budgetary stabilisation tools or EMF.

The Eurogroup’s working programme for the first half of 2018 focuses on increasing economic resilience, tackling the issue of non-performing loans, deepening EMU and completing the Banking Union.

The Eurogroup President has a role in setting the agenda and drawing up the working programme, and this may have an impact on the direction of EMU. Since his appointment, Dr Centeno has emphasised his role as a consensus builder. He has also given speeches which show support for some of the President Juncker and President Macron proposals. In a speech in early December he made the point that individual countries in the Eurozone cannot effectively counteract labour market asymmetries. A macro-economic stabilisation function he states is a ‘key instrument for the management of any monetary union’. This may imply support for the Commission’s proposal of a common European unemployment scheme.

In 2016, Dr Centeno contributed to a book entitled ‘After the Crisis’[1] which illustrates a number of his ideas about the EMU economy, and may offer some insight into his agenda as Eurogroup President. He co-authored a chapter entitled: ‘Structural reform and integration after the crisis’. In the chapter, he states that the EU has in the past drawn its legitimacy in part from positive associations made by the public between the EU and economic prosperity. The co-authors argue that the EU has pursued two principles in the economic sphere; greater integration and supply side reforms. These two principles were adaptations to two economic problems: a crisis in productivity and increasing difficulty integrating economic policies in a progressively larger and more complex union.

Dr Centeno and his co-authors argue that the crisis accelerated supply-side reforms in peripheral states, some of whom had been reform laggards, and that supply side reforms were bundled together with contractionary fiscal policy. These supply side reforms were presented as a policy response to recession, when there was a clear issue with collapsing internal and external demand which had to be addressed. The authors argue that, in addition, the crisis exposed an incompleteness in the architecture of the EMU, and that there was no mechanism to effectively deal with asymmetric shocks.

Finally, Dr Centeno and his co-authors argue that those in the EU who are of the integrationist tendency believe that each further integrative step raises issues and problems, the solution to which leads inevitably to a deepening of the Union. This formulation the authors consider to be challenged in two ways. First a public belief that country-specific monetary tools exacerbated the severity of the crisis and second a widespread discontent at the EU’s response both in creditor and debtor states. They conclude that structural reform may be able to proceed only to the detriment of further integration.

Conclusion

What shape Dr Centeno’s Presidency will take cannot be predicted, but from the above it may be possible to infer a number of things about his possible approach. It is clear, for example, that he is committed to the long term EU economic goals of further integration and supply side reforms. Furthermore, he believes that further completion of the EMU is necessary to deal with asymmetric shocks. His view that the EU must be perceived as bringing prosperity for necessary reforms to occur would seem complementary to the European Commission’s reform proposals in its Contribution to the Leader’s Agenda, which was published on 6 December 2017.

[1] Centeno, M., Caselli, F., and Tavares, J. eds., 2016. After the Crisis: Reform, Recovery, and Growth in Europe. Oxford University Press.