Merkel urges euro fiscal union to tackle debt crisis

 
Nicolas Sarkozy and Angela Merkel in Brussels 30 November, 2011 Mr Sarkozy and Mrs Merkel have been trying to reassure markets about the single currency

German Chancellor Angela Merkel has said Europe is working towards setting up a "fiscal union", in a bid to resolve the eurozone's debt crisis.

She told the Bundestag that a new EU treaty was needed to set up such a union and impose budget discipline.

On Monday she is to meet French President Nicolas Sarkozy, who has also called for EU treaty changes.

EU leaders have been under pressure to do more to tackle the debt crisis, amid concern about the survival of the euro.

In her speech, Mrs Merkel promised "concrete steps towards a fiscal union" - in effect close integration of the tax-and-spend polices of individual eurozone countries, with Brussels imposing penalties on members that break the rules.

"We need budget discipline and an effective crisis management mechanism," she said. "So we need to change the treaties or create new treaties."

The German government has been pressing for changes to establish powers to veto national budgets in the eurozone that breach agreed rules.

"We have started a new phase in European integration," Mrs Merkel said.

Analysis

Seven days of intense diplomacy have begun, before a EU summit next week. Already officials are calling it the "make or break" summit.

So is there a plan? First, there is agreement between France and Germany that the flaws in the single currency are systemic. They require a major redesign of institutions and agreements.

Secondly, there is an acceptance that the eurozone is moving beyond a monetary union to a fiscal union, with much greater central control over tax and spending.

How far will this go? We do not know. Certainly there will be much closer supervision of national budgets with a structure to enforce rules on spending.

It is also unclear whether the French and Germans are considering a limited treaty change or something more substantial. Chancellor Merkel has spoken of "sinners" being dragged before the European Court of Justice. Enforcement remains a potential area of disagreement.

But she made it clear that this was a long-term process that would take years.

On Thursday, Mr Sarkozy said a new European treaty governing relations between members was necessary to protect Europe's place in the world.

"We must confront those who doubt the stability of the euro and speculate on its break-up with total solidarity," Mr Sarkozy said.

Mr Sarkozy said the euro could not continue to exist unless eurozone economies pulled together, with France and Germany playing a key role to ensure "a zone of stability".

However, Mr Sarkozy rejected suggestions that national budgets could be approved and regulated in Brussels, and said France would not give up its sovereignty.

No 'joint liability'

In her speech on Friday, Mrs Merkel also reiterated her opposition to the European Central Bank (ECB) issuing "eurobonds" backed by all eurozone members.

"A joint liability for others' debts is not acceptable," she said. "Eurobonds are not a rescue measure in this crisis."

She added: "National responsibility and European solidarity serve each other."

Many in Germany argue that eurobonds would penalise countries with a high credit rating, and reduce the incentive of indebted governments to reform.

Analysts also say Berlin is opposed to wholesale intervention by the ECB because of the country's experience of hyperinflation in the 1920s.

Crisis jargon buster
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AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

However, Germany's Sueddeutsche Zeitung daily said Mrs Merkel was willing to see the ECB step up its buying of bonds from indebted eurozone countries, as a bridging solution until budget controls took hold.

The BBC's Hugh Schofield in Paris says the outlines of a plan are beginning to take shape. There will be some form of overarching supervision of national budgets, as the Germans want - and in return, to satisfy the French, some loosening of the ECB's rules.

The problem, our correspondent adds, is that there is still no detail - it is unclear how budgetary discipline will be enforced, and whether countries that are not in the eurozone will be relegated to a European second zone.

During their meeting in Paris on Monday, Mr Sarkozy and Mrs Merkel are to agree on joint proposals to be put to a meeting of European leaders next week.

Many analysts see that summit as a crucial moment in efforts to tackle the debt crisis.

European stock markets rose early on Friday, as Europe's leaders called for closer economic integration as the way to resolve the debt crisis.

Meanwhile, Mr Sarkozy has been discussing the eurozone crisis with UK Prime Minister David Cameron in Paris.

Britain is concerned about the possible impact of a two-speed Europe, in which it could be left on the margins along with other countries outside the euro.

 

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  • rate this
    +4

    Comment number 649.

    Fiscal union is the one and only way that the Eurozone countries can continue, if the Euro breaks up, many governments and banks will evaporate overnight - including here. The current "cuts" will be a picnic compared to what's coming if that happens...

    Since the EU is a very large trading partner / market - we'd better get used to it or find new markets to sell our goods to.

  • rate this
    0

    Comment number 626.

    In Germany the debate is more that they feel that they are dominated by others and made to pay for the priviledge. The debate here in the UK is driven by misinformation, jealousy and the general hatred for anything European amongst the most popular newspapers. The real victim of the EU's policies is democracy as all its peoples' voices are emasculated, including those of Germans and Frenchmen.

  • rate this
    +24

    Comment number 585.

    In Greece earlier this week and in Germany now, you would not believe how similar their view are about having a single super state. Both are not prepared to hand over sovereignty over to what they see as an unelected bureaucracy. In fact the Germans are even more veracious about the matter as they see themselves being taken to the lowest denominator rather than raising the rest to their level.

  • rate this
    +18

    Comment number 531.

    War is no longer acceptable, so now influence is now asserted via economic means. The results are the same, the democratic rights of the people are eroded. It seems that rather than influencing China to adopted a western political model with are adopting the Chinese political model, we already have two unelected governments in Europe, so what is next?

  • rate this
    +47

    Comment number 393.

    Fiscal Union is just another way of saying Political Union - which was always the real plan.

    It was obvious from the start that a Eurozone could not work unless all participating countries merged into a superstate - effectively run by Germany.

    One wonders how the citizens of Europe will feel be governed by people they did not elect. Germany finally achieves its ambitions for European domination!

 

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