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Abu Dhabi, UAESunday 16 December 2018

Merkel offers Macron concessions on eurozone reforms

Backdrop of crisis in Italy has focused minds in recent days as populists have taken power in Rome

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

German chancellor Angela Merkel delivered a long-awaited answer to French president Emmanuel Macron’s call for ambitious European Union reforms on Sunday, offering olive branches on investment and help for indebted eurozone member states.

More than a year after Mr Macron took office with the stated mission to bolster the EU and make it more responsive to its citizens, Mrs Merkel’s counter-offer comes at a time of heightened concern about the future of the bloc due to political turmoil in Italy and Spain and transatlantic tensions.

Mrs Merkel told the Frankfurter Allgemeine Sonntagszeitung ahead of a crunch EU summit this month that Germany, as the eurozone’s top economy, would support an investment budget whose total would be “at the lower end of the double-digit billions of euros range”.

She said the “rainy day fund”, as it has been called, would serve to help even out economic imbalances between richer and poorer European countries “which need to catch up in the areas of science, technology and innovation”.

“We need quicker economic convergence between the member states,” she said.

“To do that we have to strengthen investment capability with the help of additional structural policies,” Mrs Merkel said, adding that the fund would be phased in gradually and then evaluated in terms of its effectiveness.

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Although her budget target falls short of the range proposed by Mr Macron, it represents a concession of sorts to his view that excessive austerity has undermined faith in the bloc.

In Paris, the presidential Elysee Palace hailed what it said was a move “towards the French view”.

“This is a positive move which shows the commitment to Europe of the chancellor and her government,” a palace spokesman said.

“It’s the only possible way to strengthen the eurozone and the European Union. We remain fully committed to it and have the same level of ambition.”

The German leader also addressed plans to upgrade the European Stability Mechanism, which oversees bailout loans to troubled member states, such as Greece, into a European Monetary Fund.

“We aim to make ourselves a little more independent of the International Monetary Fund,” she said.

She proposed offering short-term credit lines to stricken countries but maintained strict conditions for support - “always subject to special conditions of course, for a limited amount and with complete repayment”.

Germany and France, traditionally seen as the twin engines of European integration, plan to hold talks before the EU summit at the end of the month to co-ordinate their positions on reform of the bloc after Britain’s exit next year.

The EU summit is seen as the last chance before European elections in May 2019 to get a few tangible projects on the road and demonstrate to frustrated voters that Europe retains the ability to deliver on its promises.

Mr Macron has repeatedly expressed impatience with what he sees as foot-dragging by his German counterpart, who was tied up with five months of coalition building after an inconclusive general election in September.

“Don’t wait, act now,” he said as he picked up a prize in Aachen last month, urging Germany to overcome its “fetish” for budget and trade surpluses, and back reforms even if it meant loosening the purse strings.

Crises unsettling Europe have focused minds in recent days, with a populist and eurosceptic government taking power in Italy and Spain ousting conservative prime minister Mariano Rajoy over a corruption scandal and Socialist Pedro Sanchez taking over.

Transatlantic relations have at the same time grown increasingly rocky due to a series of unilateral and combative decisions by US president Donald Trump, including scrapping the 2015 Iran nuclear deal and imposing tariffs on steel and aluminium imports.

On Italy, Mrs Merkel sounded a conciliatory note despite the anti-German rhetoric of the governing parties, which have argued that Berlin’s austerity policies have helped bring many indebted countries in southern Europe to their knees.

She said she was “absolutely open to talking to the new Italian government about ways to help young people find work” given high levels of youth unemployment.

However Mrs Merkel insisted she would draw the line at German taxpayers assuming responsibility for other nations’ debt.

“Solidarity between partners should never lead to a union of debt – it must be about helping others to help themselves,” she said.

In the interview, the German leader also backed a proposal by Mr Macron to create a European military intervention force outside Nato.

Berlin had long been sceptical of the move due to its stronger transatlantic posture on defence and the state of its own military, which it has acknowledged is underfunded and poorly equipped.