Monday

24th Feb 2020

Merkel says European fund would require treaty change

  • Ms Merkel said the need for a treaty change should not prevent the new fund from being set up (Photo: CDU)

German Chancellor Angela Merkel threw her support behind the idea of an IMF-style European Monetary Fund on Monday (8 March), but added that the EU treaty would need to be changed as a result.

"It leaves lots of questions open of course, but I find the idea good and interesting," Ms Merkel told reporters in Berlin.

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"But of course we are going to have to ask ourselves who will pay into it, how independent it will be from the European Commission ...Without treaty changes we can't form such a fund."

News that Germany's most senior politician believes the establishment of a European Monetary Fund to help struggling eurozone countries will require a treaty change is unlikely to bring much cheer to EU member states.

A hugely drawn-out Lisbon Treaty ratification process, which saw the Irish initially reject the new rulebook and Czech President Vaclav Klaus infuriate EU officials with last minute demands, has left a heavy cloud of treaty fatigue hanging over national capitals.

The reason behind the need for a treaty change is the EU's 'no bail-out' rule, said Ms Merkel, as outlined in the Maastricht treaty which set up the single currency area.

The German chancellor insisted however that the EU should not be put off by the prospect of further treaty negotiations. "We want to be able to solve our problems in the future without the IMF," she said.

French officials and analysts have also suggested a treaty change will be necessary, meaning the establishment of a European Monetary Fund could potentially take several years and will certainly not be ready in time to help Greece with its current difficulties.

Doubts over Greece's economy and the prospect of a possible sovereign debt default have brought the eurozone's institutional set up under closer scrutiny in recent weeks.

While the EU has a mechanism to help non-eurozone states struggling with balance of payments difficulties, availed of by Hungary, Latvia and Romania last year, the eurozone toolbox is currently empty when it comes to helping one of its 16 members.

Ever since its conception in the early 1990s, economists have warned that a European single currency area, without a fiscal and political union to back it up, could be in danger of breaking apart.

With markets currently taking a dim view on the public finances of several eurozone members, that prospect has never been closer than now, say analysts, with the European Commission on Monday signaling its willingness to get working on plans to set up a European support fund to help struggling states in the future.

Portugal became the latest country on Monday to announce plans to cut spending, delay investments and sell state assets, in a bid to fix its finances.

While the idea for a European Monetary Fund, first floated at a senior political level by the German finance minister Wolfgang Schauble over the weekend, has won much support, the European Central Bank's chief economist, Juergen Stark, has come out against it.

On Monday he said it: "Could be very expensive, create the wrong incentives and finally, burden countries [that have] more solid public finances."

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