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Abu Dhabi, UAESaturday 23 June 2018

Germany and France plot eurozone reform

Emmanuel Macron's bold vision irks German conservatives wary of footing the bill for other countries’ debts

Germany and France plan to hold talks before the EU summit at the end of the month to coordinate their positions on reform of the bloc after Britain’s exit next year. Christian Hartmann/Reuters
Germany and France plan to hold talks before the EU summit at the end of the month to coordinate their positions on reform of the bloc after Britain’s exit next year. Christian Hartmann/Reuters

The leaders of Germany and France meet on Thursday to work out a common position on reforming the eurozone, a sensitive issue testing Angela Merkel’s new government after just a month in office.

The chancellor, who hosts President Emmanuel Macron in Berlin, is under pressure from her conservative bloc in parliament not to agree to any reforms that result in German taxpayers funding what they see as profligate eurozone peers.

Mr Macron’s vision includes turning Europe’s existing bailout fund into a European Monetary Fund, to act as a buffer in any future financial crisis in the bloc.

He has also suggested the euro zone have its own finance minister and, at one point, floated the idea of a budget for the currency bloc worth hundreds of billions of euros.

“We have lots of institutions, why another one?” asked Ralph Brinkhaus, deputy leader of Mrs Merkel’s conservative bloc in parliament and a budget expert.

“And on the euro zone budget, why should the euro zone, in addition to the European Union, have an extra budget?” he told broadcaster ARD. “Why something else again?”

At a meeting with conservative lawmakers on Tuesday, Mrs Merkel trod a careful line between Macron’s drive for bold reform and their push to retain scrutiny over any European Monetary Fund developed out of the existing euro zone bailout fund.

Officials in Berlin and Paris both express confidence that they will find a common stance before an EU summit in late June.

“Let me reassure you that the silent, secret, demanding work under way will allow us to reach a true Franco-German roadmap by the time of the next European summit in June,” French Finance Minister Bruno Le Maire told lawmakers in Paris on Wednesday.

In Berlin, a government spokeswoman said Germany and France “have the firm desire to find a joint way forward”, echoing Mrs Merkel’s own cooperative tone at a news conference on Tuesday.

France and Germany, which account for around 50 per cent of euro zone output, are essential to the reform drive. But while they often put on a strong show of political unity and shared intent, the devil is frequently in the detail.

On Tuesday, Merkel said creating a eurozone banking union was a priority for her, but she also broadened out the reform question to include a European asylum system, as well as foreign, defence and research policy.

Framing reform as such a broad issue risks diluting Macron’s drive to beef up the eurozone with extra funding firepower.

Mrs Merkel also wants to make economic competitiveness a priority for the eurozone, rather than simply amassing funds for countries in trouble, and has suggested a “Jumbo Council” of European finance and economy ministers, government sources say.

But in an indication of the divisions within her government on euro zone reform, the Handelsblatt business daily reported that Mrs Merkel’s junior coalition partner, the left-leaning Social Democrats, reject the idea.

The SPD sympathises with Mr Macron on the eurozone and wants him to be rewarded for his efforts to reform the French economy, well aware that a big chunk of French voters remain susceptible to far-right and far-left populists sceptical about the EU.

Mrs Merkel’s conservatives are more reserved.

Asked if Mr Macron would come away from Thursday’s meeting with no new financial commitments, Mr Brinkhaus said: “He has already got a lot financially and Europe has got a lot financially, and of course we will continue to invest in good projects.”