Photo Gallery: The European Divide

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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

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.

A New Shadow Government for the EU

But that isn't enough for Merkel and Sarkozy. They want the 17 leaders of the euro zone countries to convene for a summit twice a year, with Van Rompuy serving as its permanent chairman.

The Belgian would also receive a bureaucratic structure for his new responsibilities, giving the Euro Group its own secretariat. According to initial ideas, the new agency would be appended to an existing European Council secretariat, so that the separation doesn't seem too obvious.

The group of finance ministers of the euro zone, which prepares the groundwork prior to meetings of heads of state and government, may also be strengthened. An idea being considered is to provide it with a full-time chairman, who would serve as a contact for Van Rompuy. Luxembourg Prime Minister Jean-Claude Juncker has taken care of the duties until now. The new chairman would be a former finance minister, making him more acceptable to a group of his peers.

While that is still in the planning stages, it has already been resolved that the working group of finance state secretaries will have a full-time chairman with his own team of employees. The body, with the cumbersome title Eurogroup Working Group, does the detail-oriented heavy lifting ahead of finance minister meetings.

In short, a kind of shadow government is currently taking shape in Brussels. But officials in Berlin have begun considering ideas which go even further. Merkel, for example, is thinking about introducing a right to file complaints before the European Court of Justice against euro-zone member states that violate the Stability Pact. Such a move would require an amendment to the Lisbon Treaty.

Integrating Economic Policies

At present, such ideas are still in the development stage -- and it isn't even clear whether the chancellor will be able to prevail with her ideas for a core Europe. Based on experiences to date, it seems highly doubtful that the EU member states can even agree on taking a significant step toward integrating their economic policies.

"Everyone agrees that stronger coordination of economic policy is a good idea," says Polish Finance Minister Jacek Rostowski. But, he adds, as soon as steps in this direction become more concrete, individual states begin to block the initiative. "I have never met a finance minister from another country who has asked me what he can do to help, in terms of economic policy," Rostowski scoffs.

And evidence of a lack of willingness to coordinate is not hard to find. A so-called European Semester, for example, was introduced at the beginning of the year with great fanfare. Although it gives the Commission the right to monitor national budgets to gain more control over the debtor nations, the Commission cannot do more than issue recommendations. If countries do not comply with austerity requirements, as is currently the case with Italy, the Commission has no leverage to correct national fiscal policy.

The self-proclaimed boosters of enhanced integration also hesitate when they are the ones being asked to give up competencies. Sarkozy, for instance, is still blocking an agreement with the European Commission and the European Parliament on reforming the Stability Pact. Germany and France support the so-called intergovernmental method, which involves agreements being made among the member states. This prevents the European Commission and the European Parliament from having too much of a say. But small countries, in particular, fear that they cannot protect their interests against the large countries without the help of the Commission. The concern is that the large countries will end up dominating the smaller countries. "You can push experiments involving greater cooperation at the intergovernmental level, but in the end this policy should become part of the EU agreements," says Belgian Finance Minister Didier Reynders.

'A Few Idiots'

European Commission President José Manuel Barroso is also alarmed. In a "speech on the state of the union" last year, he warned against a division of Europe. He intends to read the member states the riot act before the European Parliament in Strasbourg at the end of the month. Last Thursday, Barroso tested the mood at a lunch with a few members. He argued that because of the principle of unanimity, the intergovernmental method would allow "a few idiots" in one country to "blackmail" the EU.

In addition, the consequences of the decisions are always perceived with some delay. In the most recent example, the German government wants to provide more guarantees for the expanded bailout fund than the current €211 billion. Unnoticed by the public, it is adopting a passage from the current guidelines, under which the fund can be increased by 20 percent if necessary. In an emergency, this could mean that Germany would be responsible for more than €250 billion.

The German-French ideas are also virtually unenforceable among the 17 euro zone members. Many of those countries suffering from bloated deficits are first calling for the introduction of joint euro bonds before they are prepared to relinquish more sovereignty. But that is precisely what Merkel and Sarkozy have rejected until now. "It's a chicken-and-egg problem," says Belgian Finance Minister Reynders. "Some want a fiscal union first, while others want a transfer union."

There is also resistance to Merkel's plans from within her own coalition. CSU Chairman Seehofer, for example, is strictly opposed to relinquishing "national sovereign rights to a European economic and fiscal union." "We don't want a European super-state," he adds.

The Right Approach

The business-friendly Free Democrats (FDP), Merkel's junior coalition partner in Berlin, is also uninterested in the chancellor's plans for a more integrated Europe. It is opposed to both euro bonds and outfitting Europe with additional competencies.

In short, Merkel's two-speed concept is not just creating a rift within Europe, but within German politics, as well. The CDU, SPD and Greens are calling for tighter political integration of the continent, while the CSU and the FDP are generally opposed to the idea.

This Monday, the chancellor is receiving support from a completely unexpected quarter. In recent months, the billionaire Nicolas Berggruen has assembled a "Council for the Future of Europe" under the auspices of his institute. In addition to former German Chancellor Gerhard Schröder, it includes former British Prime Minister Tony Blair, former Spanish Prime Minister Felipe González and former European Commission President Jacques Delors.

The council supports more instead of less of Europe. It advocates the EU expanding its bailout funds, tighter integration and the transfer of more national competencies to Brussels, not just in financial and economic matters. It also proposes a European tax that Brussels would be empowered to levy for the EU in the future, as well as a program for growth and employment in Europe and an overhaul of all labor markets and social welfare systems in the member states. It would be a vast and far-reaching reform.

It's no surprise that council member Schröder almost wholeheartedly supports his successor's plan for more European integration. "Germany and France issued a strong signal with the plan for a European economic government," the former chancellor said in an interview with SPIEGEL. "That's the right approach."

Translated from the German by Christopher Sultan
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