• Merkel and Hollande still at odds over what should be bigger, the carrot or the stick (Photo: European Council)

Leaders disagree on future euro integration

14.12.12 @ 07:15

  1. By Valentina Pop
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BRUSSELS - EU leaders early Friday (14 December) had different views on how to deepen integration in the eurozone, with Germany insisting that any new budget aimed at rewarding reforms in the eurozone should be at most €20 billion strong.

In a bid to present a united front, EU leaders after the 10-hour long session focused mainly on things that had already been agreed: a deal on Greece's debt and bailout tranche and a key agreement by finance ministers on putting eurozone's largest banks under central supervision.

"We've had a successful few days," said EU council chief Herman Van Rompuy.

French President Francois Hollande agreed: "We made Europe advance at a steady pace since June, with the growth pact, the fiscal compact, the financial transaction tax, Greece and now the banking supervisor."

But little was decided on Friday about how to bring about the long-advertised "deeper integration" in the eurozone. Leaders had promised in June to come up with a "roadmap" on changes to the eurozone architecture by December, as they were seeking to calm markets fretting about Spain and possibly Italy needing a bailout.

Instead, according to one German official, leaders would agree on a "roadmap for the next steps to agree on the future steps."

Most of the debates revolved around the eternal disagreement between Germany, the Netherlands and Nordic states on one side and France and southern allies Italy and Spain on the other on what should come first: joint funding or a loss of sovereignty. One diplomat summed it up as one side pressing for "a big stick with a small carrot versus a big carrot with a small stick."

The latest 'stick' of German inspiration are "contractual arrangements" signed between member states and EU institutions making it binding for governments to implement reforms as recommended by the commission.

German Chancellor Angela Merkel said national parliaments would also be bound by these contracts. "This would bring about democratic legitimacy, but also if a parliament promises something, it has to stick to it."

As for the 'carrot', it is the idea of a eurozone-only budget, possibly funded by an upcoming tax on financial transactions - a tax only a dozen EU countries are intending to adopt.

But Germany was irritated over expectations that this fund would be worth "hundreds of billions", fund unemployed people in Spain or cushion "external shocks" for southern countries unable to deflate their currency, one EU source said.

"What will not come up is this idea of shock absorption fund. It is not specific enough. What we want is support in connection with improvements in competitiveness," Merkel told journalists after the meeting.

She added that this budget would be "very limited, say €10-15-20 billion" and noted that some countries said they would prefer to agree on the seven-year EU budget first before diving into this new idea. Dutch Prime Minister Mark Rutte was according to one source even "more difficult" than Merkel on the issue.

Van Rompuy, who proposed the "shock absorption" formula, admitted in a press conference that "we were not tasked to work on it for June," but said that the commission could still propose it.

More discussions with member states are to be held until June both on the contracts and on what is now called "solidarity mechanisms" - the new term for a eurozone budget that was acceptable to Germany.

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