Harmonizing Policies in the Euro Zone Merkel Pushes Ahead with Economic Government Plans

German Chancellor Angela Merkel is to propose a "pact for competitiveness" to the member states of the euro zone in a bid to get countries to harmonize their policies. The plan, which is intended to calm the financial markets' fears about the euro, would introduce a kind of economic government in the euro zone that goes far beyond what has so far been agreed.

German Chancellor Angela Merkel speaks at the World Economic Forum in Davos on Friday.

German Chancellor Angela Merkel speaks at the World Economic Forum in Davos on Friday.

Plans by German Chancellor Angela Merkel to introduce an economic government in the euro zone are taking concrete form, SPIEGEL has learned.

The chancellor intends to propose a "pact for competitiveness" to the 17 member states of the monetary union. The planned agreement will "contain concrete commitments to strengthen competitiveness that are more ambitious and more binding than those that have already been agreed by the EU-27," reads a Chancellery document, referring to the wider group of the 27 European Union members. The paper, which has been seen by SPIEGEL, argues that "closer integration of national financial, economic and social policies is necessary" in order to dispel financial markets' concerns about Europe's common currency.

The progress that member states make in regard to the proposed aims will be evaluated "based on objective targets," the document continues. Merkel's officials propose developing indices to ensure that wage costs in the member countries do not diverge too far, that funding for pension systems remains stable in the long term and that sufficient investments are made for the future.

To achieve the objectives as quickly as possible, the paper recommends that "initial measures be agreed upon as part of an emergency program that would be implemented on the national level within 12 months." The document cites "the adjustment of the retirement age to (reflect) demographic trends" as an example of such a measure. It also foresees euro-zone members pledging to adopt a "debt brake" based on the German model. The debt brake is an amendment to Germany's constitution that requires the government to virtually eliminate the country's structural deficit by 2016.

Calls for Closer Cooperation

Merkel has recently been calling for closer cooperation between euro-zone member states in a bid to bring greater stability to the euro and ward off future crises. "Each EU country should become more financially stable and economically competitive for itself and for Europe as a whole," she said in a recent interview, adding that a European economic government should look at harmonizing "social and tax policy, employment rights and wage trends in the public sector … to reduce the discrepancies" in these areas.

"We are facing the question of whether the 17 euro countries should work more intensively together," she said in the interview. "To that I say: Yes, they should, but not exclusively. Whatever we agree on should also remain open to other countries who want to take part."

German Finance Minister Wolfgang Schäuble made similar remarks in a speech in Berlin last Wednesday. "I'd like to see the framework cleared up quickly of what is understood as an economic government, and the details of how it can take decisions efficiently and in a way that is democratically legitimate," he said, in remarks quoted by the news agency Reuters. "It's important this cooperation shouldn't be a closed shop, but that it should also allow other EU member states that aren't yet part of the euro zone to play a part in it voluntarily,"

The German proposals are part of an ongoing discussion within the European Union regarding measures to make the common currency more stable. SPIEGEL reported earlier this month that France and Germany both want Europe to have an economic government, but are split over what form it would take.

A full feature on Merkel's proposal will be published in English on Monday.



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