Divide and Rescue Berlin Lays Groundwork for a Two-Speed Europe

Chancellor Angela Merkel has always rejected a two-track Europe. But with the euro crisis persisting, Berlin is now considering far-reaching new powers for the Euro Group -- to the detriment of the European Commission. Could it work? By SPIEGEL Staff

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Herman Van Rompuy tends to be overlooked whenever European heads of state and government meet for their summits. The Belgian politician, president of the European Council, is an inconspicuous man with a receding hairline and metal-rimmed glasses, someone who doesn't seek the limelight, and who enjoys writing haikus about nature in his free time. He is one of the most powerful politicians in Europe, but he is almost unknown in most EU countries, including Germany.

Van Rompuy has been traveling a lot lately. His current schedule includes meetings with Finnish Prime Minister Jyrki Katainen and French President Nicolas Sarkozy. On Monday, Van Rompuy meets with German Chancellor Angela Merkel in Berlin, where he can look forward to a particularly pleasant conversation. Merkel wants to propose giving the European Council president even more power.

The chancellor is planning her next political policy reversal. Until very recently, she has insisted that she was firmly opposed to creating divisions within Europe. But under the pressure of the euro crisis, Merkel has recently been thinking about abandoning the concept of a unified EU -- and assigning a key role to Van Rompuy in the process.

The EU has always been careful to ensure that all members acted in unison, whether it involved moving forward or standing still. But in times in which the common currency threatens to break apart, the 17 nations of the euro zone need a common economic and financial policy. Otherwise, as the crisis has demonstrated, the euro cannot function.

A New Power Center?

Today, it is primarily Great Britain that is preventing the EU from growing closer together. Merkel, though, has had enough -- and is now planning a two-speed Europe. It would mean tightly interlocking the countries of the euro zone, possibly by means of a separate treaty that would apply in parallel to the EU Treaty of Lisbon. This was the concept German Finance Minister Wolfgang Schäuble proposed last week to the leadership of his party, the center-right Christian Democratic Union (CDU). Merkel sees Van Rompuy, who already chairs the council of the 27 EU leaders, as the head of the new power center.

In addition to the club of 27 nations that primarily manages the common domestic market as it has done until now, Merkel envisions a tight alliance of the 17 euro-zone members -- one which would unify their fiscal, budgetary and social policies. This would create a two-class club, raising questions like: What happens to the European Commission? Will it still be responsible for economic matters in the euro zone, or will there be a new organization? The same questions apply to the European Parliament and the European Court of Justice in Luxembourg. Would all of these institutions have to be duplicated, meaning even more bureaucracy, effort and expense?

There are no answers yet to these questions, and there is already plenty of skepticism. The European Commission is just as opposed to Merkel's plans as most members of the European Parliament and many smaller EU countries are. They also have some within Merkel's own ranks raising their eyebrows. "We will not rescue the euro by creating more and more committees and instruments," says Horst Seehofer, the chairman of the CDU's Bavarian sister party, the Christian Social Union (CSU).

That is precisely what Merkel has in mind. She can draw on a concept known as "Core Europe," which was developed in the 1990s by the then-chairman of the CDU/CSU parliamentary group, a certain Wolfgang Schäuble, who now serves under Merkel as finance minister. Both have established various measures to rescue the euro in recent months, some for the EU as a whole and others exclusively for the 17 euro-zone member states.

Taking Things a Step Further

Although the heads of state and government have formally strengthened the Stability Pact for all EU countries, only those countries that have introduced the euro face the threat of harsh penalties. They, in particular, should commit to decreasing their government debt and strict conditions should govern the process. "No one cares whether Great Britain or Poland violate the 3 percent ceiling for the deficit," says a German government official.

A similar situation applies to the so-called Euro-Plus Pact. In it, the countries of the monetary union pledge to increase their competitiveness and fix weaknesses in their social systems, by raising the retirement age, for example. Every country that wants to participate can do so. Poland, for example, has joined the agreement. However, it cannot participate in the decision-making process. The rules were developed within the group of 17.

Labor Minister Ursula von der Leyen is interested in taking things a step further. She would like to see greater integration of social policy in the euro zone countries as well and envisions a Euro Group of labor ministers based on the finance minister model.

But it doesn't stop there. Merkel and Schäuble are seeking further steps toward integration in tax policy. At a meeting of the CDU/CSU parliamentary leadership last week, Schäuble said that because of resistance from countries like Great Britain, it is taking too long to agree on a financial-transaction tax applicable throughout the entire EU. Because of the delay, he said, he could imagine initially launching the project in the euro zone.

Giving Up Sovereignty

The scope of a joint corporate tax proposed by Merkel and Sarkozy at their meeting in mid-August is also likely to be expanded beyond the two largest member states. "This is much more broadly conceived," says a source within the German government. The two leaders envision a largely uniform tax for corporations within the euro zone.

All of these ideas amount to the euro countries gradually giving up parts of their national sovereignty. It wasn't until the crisis came along that a willingness to move in this direction began to emerge. Ironically, it is the countries most deeply affected by the crisis that serve as a model for this new approach. Greece, Ireland and Portugal have already overcome some obstacles when it comes to relinquishing sovereignty. Now the countries whose government finances are still healthy will be expected to give up some of their independence as well.

New bodies are to be formed to expedite the integration of the Euro Group. Germany and France want to make themselves more independent of the existing structures in the EU and no longer be solely dependent on the resources of the European Commission.

As a first step, the European Financial Stability Facility (EFSF), headed by the German economist Klaus Regling, is to develop its own analysis division. The division would monitor the financial markets and make proposals on how the EFSF can avert crises. Only the member states of the euro zone are involved in the EFSF. The Lisbon Treaty, the basis for the EU, has nothing to do with the institution.

The monetary union already had its own bodies that make decisions more or less independently of the European Commission. The important decisions have already been made for some time within the Euro Group, the group of finance ministers from the member states of the monetary union. They meet once a month, or more often, if necessary.

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Eleos 09/05/2011
1. Enough is enough
The collective wisdom of the German people is right. Power corrupts. Merkel and Sarkozy are deluding themselves if they believe further measures "dictated by the markets" will appease the markets. They will not, and after the markets have taken their profits they will be back for more. Let Greece default. Let Italy default. The only downside for Germany is the bond portfolios of the banks. They too should be allowed to fail and their assets and liabilities taken into public ownership, so that the accounts of citizens are honoured and the casino funds drained. Britain depends on gambling in financial markets and will not agree to the measures necessary to control the reckless gambling driving the markets. The rest of the EU should heavily tax financial operations that do not have an underlying unambiguous purpose, such as physical trade; and if the UK will not agree, then she should be politely asked to leave the EU.
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