Tuesday

19th Oct 2021

Germany pours cold water on euro reforms

  • Next step is for Merkel (r) to agree a position with SPD (Photo: Consilium)

Germany is proving less keen than the European Commission had hoped to share its wealth with poorer EU states.

That reluctance is likely to push back deadlines for proposals on eurozone reform. It could even sink the commission's ideas on deeper monetary union, solidifying Europe's north-south economic divide.

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  • Germans fed up with bailing out southern states such as Greece, Brinkhaus said (Photo: Eric Maurice)

One commission proposal was to create a European Deposit Insurance Scheme (EDIS) to protect up to €100,000 of savers' deposits in any eurozone bank.

European Council head Donald Tusk wanted to press ahead at an EU summit in June, but German MPs were still "far, far away" from agreeing to use German money to underwrite the scheme, Ralph Brinkhaus, the deputy head of chancellor Angela Merkel's centre-right CDU/CSU bloc told press in Berlin on Thursday (12 April).

"We are so far apart that hardly any results can be achieved at the EU summit in June," he said.

Another idea was to transform the European Stability Mechanism (ESM), the EU's intergovernmental bailout fund, based in Luxembourg, into a kind of European Monetary Fund (EMF).

But Brinkhaus said the ESM was "sufficient" as it was, adding, on a note of German austerity, that it should tie loans more strictly to creditor reforms.

He added that Germany would reject anything that looked like creating "euro bonds by the backdoor", referring to a third commission idea to create a new EU "safe asset" as an alternative to sovereign debt.

"It's a fishy proposal," he said.

The MP noted that eight northern EU states, where the bloc's wealth was concentrated, shared his scepticism.

He also said German voters shared it. He noted that dozens of German MPs had voted against the last Greek bailout in 2015 and that the EU should focus on border control, competition policy, and the digital single market instead of monetary union.

German chill

Even more cold water poured onto the eurozone plan from Jens Weidmann, the head of the Bundesbank, and a top candidate to replace Mario Draghi as the chief of the European Central Bank (ECB) next year.

Replacing the ESM with an EMF would not fly because it would give EU officials the power to levy national funds for future bailouts, he said.

"If this step would undermine the member states' existing right to have a say, it would have to be rejected because then liability and action would diverge - because it's the member states that are providing the guarantees for the risks taken by the ESM," Weidmann said in Berlin on Thursday, according to the Reuters news agency.

In related ideas, Germany is pushing the ECB to crack down on non-performing loans - a move that could raise costs for banks in southern Europe, whose lenders hold mountains of bad debt.

The problem is the worst in Greece, where 46.7 percent of loans look like they will never be repaid. Portugal stands at 17.8 percent and Italy at 12.3 percent.

The commission's eurozone reforms were put forward as part of Europe's political response to Brexit, which had posed questions on future EU integration.

They were broadly endorsed by Emmanuel Macron, the French leader, in a speech last September, and went beyond the EDIS and EMF, calling also for a single eurozone budget administered by the European Parliament and the creation of a eurozone finance ministry in Brussels.

Next step

The next step in Germany will be for Merkel to agree with Olaf Scholz, the centre-left SPD party's finance minister in the new grand coalition, on what to do.

But for those in southern EU states who might have hoped the SPD would loosen Germany's purse strings, Scholz backs the CDU/CSU's slowly-slowly approach, with the finance chief referring to the EU deposit-guarantee scheme as a "medium-term" project in German daily Handelsblatt on Friday.

Achim Post, the deputy head of the SPD, told the Reuters news agency on Thursday that his party still supported the commission's euro plan, but also said Tusk's June deadline was premature.

"This certainly applies, in particular, to the establishment of a European deposit-guarantee scheme," he said.

Germany's position risks cementing the EU's north-south economic divide, at a time of east-west division over rule of law in Hungary and Poland.

"Time is running out," to agree on a euro-reform model, commission vice-president Valdis Dombrovskis told Handelsblatt this week.

"What we need are concrete choices about how the combination of risk mitigation and risk sharing should look like," he said.

Klaus Regling, the head of the ESM, also warned against the "risk of political inaction" despite the harsh lessons of the 2008 financial crisis.

This story was amended on Friday 13 April. The original version said French president Emmanuel Macron had put forward the euro reform plan. This was incorrect, as the European Commission had in fact done so, in a move later endorsed by the French leader

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