'Poets and Alchemists' Berlin and Paris Undermine Euro Stability

German Chancellor Angela Merkel and French President François Hollande: The German chancellor is unlikely to seek a collision course with France over its budget deficit.

German Chancellor Angela Merkel and French President François Hollande: The German chancellor is unlikely to seek a collision course with France over its budget deficit.


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.

"If we make an exception for Paris here, then we are calling into question the entire stability pact," said Gunther Krichbaum, a member of Merkel's conservative Christian Democrats and head of the European Affairs Committee in the Bundestag. "France and Germany have done this before," he said, referring to past violations in 2003 and 2004. "We should not allow it to happen again."

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.

Early this week, French and German economics and finance ministers plan to meet in Berlin. The end of the week will see an EU summit in Brussels.

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


Discuss this issue with other readers!
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Inglenda2 10/20/2014
1. The EU is not the free Europe so many people died fighting for!
Moscovici former French finance minister and future European commissioner for economic and financial affairs cannot be relied on to stop the Euro-zone debt crisis. But who in Brussels can be trusted to do so? Too often have we heard that the European Union has agreed to strengthen the Euro and its Stability? Nothing has been done in that direction and the savings of millions of Europeans have been literally destroyed. The very basis for a successful common currency, (a harmony of taxes and social insurance, in all member states), has not even been earnestly discussed, let alone introduced! Under such conditions, it is no wonder that Euro sceptics are on the increase. As to German Chancellor Angela Merkel &Co., The question may be raised: Who is more dishonest, Those who try to avoid paying taxes, or those who have no conscience about helping themselves to the money which has been paid?
spon-facebook-10000139396 10/20/2014
2. classic faults
The EU has the classic fault of most un-successful federations: that of hegemony of one or two states. Add that to the lack of Fiscal Union; which must now be plain to everybody, is the primary quality necessary for any successful currency: the future of the EU does not look bright.
peskyvera 10/20/2014
There are the rich EU nations. There are the poor EU cousins. And then there is corruption all over the EU.
pbranco 10/20/2014
A true Europe has to consider the same treatment for all. None discrimination has to be aloowed.
green123 10/20/2014
5. I see IMF rules all over this...
"They would have had to pay an €800 to €900 million fine," Olli Rehn, the currency commissioner at the time, told EU auditors last week. To avoid the penalty, the Belgian government made cuts to unemployment benefits and raised the age for early retirement. " This sounds to me like the IMF's Washington Consensus that US applies to small nations. Is this where the EU is heading? a US puppet nation like Mexico...
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