Monday

26th Aug 2019

Merkel: eurozone needs more EU supervision

  • Merkel is not budging on calls to allow Spanish banks access to eurozone's bail-out fund (Photo: PeterXIII)

German Chancellor Angela Merkel on Monday (4 June) said she supports more integration in the eurozone - a veiled reference to pooling debt provided EU institutions gain more supervisory powers.

"We need more Europe, not less, especially in the eurozone. This means that EU institutions, the EU commission included, should be granted more possibilities to control. Otherwise it would be impossible for a currency union to work," Merkel said alongside EU commission chief Jose Manuel Barroso who visited her in Berlin ahead of a 28-29 June summit.

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Recognising that her hard-fought-for treaty on fiscal discipline - signed in March by 25 EU states - is "a first step, but certainly not a sufficient one," Merkel said it was imperative for EU leaders to come up with a plan for the future of the eurozone.

"The world wants to know how we are picturing the political union matching the monetary union. An answer to this question has to be formulated in the near future and Germany will be a constructive dialogue partner in this regard," she said.

She endorsed the so-called banking union - particularly putting big banks under central EU supervision - and re-stated the need for more competitiveness and controls to ensure that every member state sticks to its budget consolidation pledges.

Once all these steps towards a fiscal and political union taken, Germany may consider pooling debt with other eurozone countries, her finance minister, Wolfgang Schaeuble, told Handelsblatt in an interview.

"Before we can talk about joint management of debt, we need the right fiscal union," he said in an interview published on Tuesday (5 June).

According to unnamed Berlin officials quoted by the New York Times, the compromise Germany is willing to consider is combining Europe's bad debt into a single fund to be paid off over 25 years, rather than issuing joint debt - which would be unconstitutional under German law.

Germany has come under sustained criticism for its handling of the euro-crisis, which has seen it delaying financial assistance until the very last moment. This tactic has increased costs for southern states.

"Markets remain sceptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen. So we obviously believe that more steps need to be taken," White House press secretary Jay Carney told reporters on Monday.

Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy (G7) would hold a special conference call on Tuesday, raising pressure on Europe to recapitalise its banks and stem contagion from Greece to Spain and Italy.

Madrid so far has been resisting German pressure to ask for financial assistance from the eurozone bail-out fund, arguing for its troubled banks to be rescued directly either by the eurozone fund or by cheap money from the European Central Bank, so as to avoid piling more debt onto the government's books.

But in a government statement put out on Monday, Merkel brushed off calls for changing the EFSF rules so as to allow direct recapitalisation of banks: "All the instruments are available to guarantee the safety of banks in the eurozone."

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