'Poets and Alchemists': Berlin and Paris Undermine Euro Stability
Part 2: Merkel Likely To Avoid Showdown
Still, it's a showdown that Berlin would like to avoid, and Chancellor Angela Merkel is hoping for the support of incoming EU Commission President Jean-Claude Juncker. He will likely to want to sidestep a spat with France at the beginning of his five-year term. The conservative French daily Le Figaro recently wrote that an outright rejection of the budget would have the impact of an "atomic bomb". The signals coming out so far suggest there will ultimately be a compromise, and likely a dubious one at that.
Speaking in German parliament on Thursday, Merkel played the part of the disciplinarian. "All, and at this point I will reiterate this again, all member states must fully respect the strengthened rules of the Stability and Growth Pact," she said. The chancellor's words reflected the sentiment of the members of parliament responsible for fiscal and EU policy.
Back then, Chancellor Gerhard Schröder and French President Jacques Chirac unceremoniously moved to soften the Stability Pact's criteria because they either could not or would not adhere to its rules. Even today, the move is considered to have been a serious blunder -- one that is often used against Merkel when she calls on other countries to strictly adhere to the rules.
Firm Words, But Little Action
German Finance Minister Wolfgang Schäuble has also had firm words for his French colleagues. "The request for an extension can't seriously mean that nothing gets done," he recently told French Finance Minister Sapin during a meeting.
But behind the scenes in Berlin, a much softer tone can be heard. "You just can't do that with France, not with France," one German EU diplomat close to the foreign minister and chancellor said weeks ago. One high-ranking member of Merkel's government says that a formal rejection of France's budget would "massively burden German-French ties." He added: "It would be presented as if we were somehow responsible because of our obsession with austerity."
In closed-door talks, Merkel's European policy advisor, Nikolaus Meyer-Landrut, has reportedly assured the French that Germany will oppose any efforts to impose a fine against France if the Commission decides to initiate debt proceedings against Paris. In return for its loyalty, Berlin wants Paris to stick to a detailed timetable for implementing reforms.
Some officials in Brussels and Berlin are also pushing to unshelve one of Merkel's pet ideas, so-called "contractual agreements" -- written agreements between the European Commission and a euro-zone country that commit that member state to undertake specific savings measures or clearly delineated structural reforms. Under the original plan, the country could then obtain financial aid from a special fund in return. For France, the reward would be a further suspension of the deficit rules. "We need a calculable and perhaps even an actionable agreement between Brussels and Paris," German government sources say.
Little Progress in Paris
Sending any outward sign of trust to a country that has already been facing proceedings since 2009 for an "excessive deficit" is problematic. The European Commission has already given France two reprieves for getting its public finances in order, but Paris has shown little progress. Neither conservative French President Nicolas Sarkozy nor his Socialist successor François Hollande has managed to get the budget under control. Meanwhile, Prime Minister Valls is facing an open rebellion within the left wing of his party and has only a thin majority in parliament. Nor is it certain that French leaders would accept pressure from the German government to enter into a contract with bureaucrats in Brussels they often view disparagingly.
The talks are continuing, but deadline pressures and worries are growing. The issue, says European People's Party parliamentary group head Weber, is not about who is right. "The financial markets have already fired a warning shot at the euro-zone states. A high level of credibility with debt rules is the prerequisite for preventing a new financial crisis."
Rehn also has no illusions. "Let me be clear: Reforms in France were not enough to justify the extension," the politician, who is now a member of the European Parliament, said last week. He argues that the reverse should be true. "First, reforms need to be delivered. Then we can talk about an extension." He went on to say that he wishes France's Pierre Moscovici "better success than I had" as an EU commissioner.
By Nikolaus Blome, Julia Amalia Heyer, Ralf Neukirch, Christoph Pauly, Gregor Peter Schmitz and Christoph Schult
- Part 1: Berlin and Paris Undermine Euro Stability
- Part 2: Merkel Likely To Avoid Showdown
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