Germany predicts EU 'political union' in 10 years

13.12.10 @ 09:26

  1. By Andrew Willis

BRUSSELS - German finance minister Wolfgang Schaeuble has said his country is willing to discuss greater harmonisation of eurozone tax policy, adding that the next decade is likely to see Europe take significant steps towards closer political union.

  • Schauble (l): 'In 10 years we will have a structure that corresponds much stronger to what one describes as political union' (Photo: consilium.europa.eu)

The remarks, made in Germany's mass-selling Bild am Sonntag newspaper on Sunday (12 December), come as EU leaders look set to agree a limited EU treaty change this week in order to set up a permanent crisis mechanism to provide financial support to struggling eurozone states.

Germany has previously opposed calls for a fully-fledged fiscal union within the euro area, but this position appears to be softening. "The basic decision was for fiscal and budgetary policy to be decided on the national level. If that is to be changed, then we can talk about it," Mr Schaeuble said in the high-profile Bild interview.

"In 10 years we will have a structure that corresponds much stronger to what one describes as political union," he added.

Meeting in the German town of Freiburg on Friday, French President Nicolas Sarkozy and German Chancellor Angela Merkel also said eurozone leaders must draw a fundamental lesson from the ongoing debt crisis and take steps towards political integration, including the harmonisation of tax policies or labour law.

These initiatives would foster greater convergence of eurozone economies and "show this is not just about currency issues but also about political co-operation, which has to be deepened," said Ms Merkel.

Only days earlier, Luxembourgish Prime Minister Jean-Claude Juncker had brandished Berlin as "un-European" over its refusal to support the creation of a common eurozone bond, a move some experts say would help shore up stability in the currently-distressed currency club.

Investors' doubts in the 16-member single currency economy have continued unabated this year, despite bail-outs for Greece and recently Ireland. Former UK prime minister Gordon Brown warned this month that the euro was headed for a day of reckoning early in the new year, a prediction seemingly backed up by new data from Italian bank UniCredit.

The bank calculates eurozone nations will have to refinance or repay €560 billion in debt next year, €45bn more than 2010 and the highest amount since the launch of the single currency in January 1999. The refinancing pressures could force other eurozone governments to call for support from the European bail-out fund, warn analysts.

In May EU leaders agreed to establish the €440 billion European Financial Stability Facility (EFSF), a triple-A rated institution based in Luxembourg which can issue bonds and lend to stricken eurozone states.

Now EU leaders look set to agree a limited EU treaty chance this week in order to turn the temporary facility into a permanent rescue mechanism around the middle of 2013 when the EFSF expires.

Irish Europe minister Dick Roche revealed the expected wording of the treaty tweak to Irish MPs on Friday, insisting the new language would not require a referendum in Ireland.

"Member states whose currency is the euro may establish amongst themselves a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under the mechanism will be made subject to strict conditions," reads the simple two-sentence paragraph to be inserted into the EU rulebook, reported the Irish Times.

Germany has successfully won its demand for the permanent mechanism to include the private sector sharing in future bail-out costs, reports the BBC. Such a decision could significant raise the borrowing costs of 'peripheral' eurozone states, as investors demand extra yields to cover the costs of a potential debt restructuring under the new mechanism.

At the same time, there are reports that changes are currently being considered to enable the temporary EFSF to buy sovereign bonds from distressed eurozone governments, a role currently being carried out by the European Central Bank via the secondary market.

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