Friday

22nd Oct 2021

France and Germany detail sweeping changes to eurozone set-up

  • Berlin and Paris have added detail to their proposals for treaty change (Photo: consilium.europa.eu)

The Franco-German powerhouse at the heart of the EU has proposed a series of sweeping changes to the bloc's institutional set-up in an effort to bring an end to the eurozone crisis that has laid low European economies and threatened the survival of the Union.

German Chancellor Angela Merkel and French President Nicolas Sarkosy in a joint letter to EU Council President Herman van Rompuy delivered on the details of what they agreed last week must be altered in the eurozone.

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"The current crisis has clearly demonstrated the shortcomings of the architecture of EMU [European Monetary Union]. We must address these deficiencies," the two write.

"We believe that we need to strengthen the architecture of the economic and monetary union by going beyond the necessary measures that are urgently needed for the immediate settlement of the crisis," they continue.

"These measures should be taken without delay. We believe that this is essential for the credibility and confidence in the future of economic and monetary union."

The two are looking to a treaty change to achieve the reconstruction of the single currency area, to be agreed on Thursday (8 December) at an EU summit in Brussels and approved as soon as March next year.

If it is not possible for all 27 EU member states to agree on the changes, they warn that the 17 members of the eurozone must forge ahead without them.

The core of the proposals would see a new framework of tough rules on fiscal policy that would enforce a limit to national budget deficits of three percent as a proportion of gross domestic product.

This maximum would be backed up by automatic penalties that could be imposed on eurozone states.

Such budget limits should in turn be inscribed in national legislation - a 'golden rule' - setting in stone balanced budgets.

The two leaders also said they wanted to see regular eurozone summits at least twice a year, and monthly for as long as the crisis lasts.

The duo want to see the implementation of the bloc's permanent rescue fund, the European Stability Mechanism brought forward to 2012 - a year earlier than originally planned.

And, in a move that is already being opposed by some smaller member states, Merkel and Sarkozy also want to see management of the bail-out funds streamlined by moving from unanimity to majority-based approval of decisions.

Both also make clear that private-sector involvement in rescues will be strictly limited to Greece and that no such write-downs would occur with any other states whose solvency is in question.

Rounding out the changes to the bloc's set-up, France and Germany want to see a convergence of labour-market regulation and a harmonisation of the corporate tax base.

The pair also backed the introduction of a financial transactions tax across Europe.

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