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8th May 2021

Barroso sides with Merkel over need for treaty change

  • Like Merkel, Barroso feels a EU treaty change would be needed to set up a European Monetary Fund (Photo: ec.europa.eu)

European Commission president Jose Manuel Barroso has said the setting up of a European IMF-style fund to help struggling eurozone countries would most likely require a EU treaty change, echoing comments made by German Chancellor Angela Merkel.

The statement, made in response to a question from a member of the European Parliament in Strasbourg on Tuesday (9 March), is a further stumbling block to the quick establishment of a European fund capable of making loans to struggling euro area governments.

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It "might probably require a change to the treaty," said Mr Barroso when asked to give his opinion on the matter, adding that any European fund would not be ready in time to help Greece with its current difficulties.

Some analysts believe this is not necessarily the case however. "It depends on what conditionality you put in and how you link it to the EU," said College of Europe economics professor Jacques Pelkmans.

"If you have a European Monetary Fund, but with similar conditionality to the International Monetary Fund, you could keep it out of the EU treaties," Mr Pelkmans told EUobserver. Close links between the fund and rules governing the euro area - the Stability and Growth Pact - would however necessitate a treaty change, he added.

Setbacks?

A fierce debate on the implications of a European Monetary Fund has raged in economy circles since German finance minister Wolfgang Schauble announced his intentions on Saturday to "present proposals soon" for a new eurozone funding institution.

The news was quickly followed by comments from the EU's economy commissioner, Olli Rehn, indicating the EU executive body was ready to draft proposals if sufficient eurozone support existed.

But a statement by German Chancellor Angela Merkel later on Monday, stating her belief that a EU treaty change would be needed to set up the fund, has been interpreted as an indication of only lukewarm enthusiasm by some EU officials, with the Lisbon Treaty's lengthy ratification process leaving little appetite for further treaty negotiations in many national capitals.

"She has signaled her support for the project, while quietly kicking it into the long-term," said one EU official who wished to remain anonymous.

Following a meeting with Luxembourgish Prime Minister Jean-Claude Juncker on Tuesday, Ms Merkel insisted that plans for a European Monetary Fund will only work if strengthened "sanctions" are incorporated to penalise wayward spenders.

For her part, French economy minister Christine Lagarde said the setting up of an EMF is an interesting idea but not a priority.

The European Central Bank's chief economist, German citizen Juergen Stark, has come out against the idea of a European fund, saying it could be: "Very expensive, create the wrong incentives and finally, burden countries [that have] more solid public finances."

The mixed feelings within Germany, and across the EU as a whole, are also felt inside the bloc's trade union movement.

Attending a meeting in support of Greek workers in Brussels on Tuesday, the head of the European Trade Union Confederation (ETUC), John Monks, said there were "merits" in the idea, but that it "needs to be worked out carefully".

"Are the rules different to the IMF, is question number one," he said. "Is it a tough-love fund like the IMF or is it something a bit less tough? It would be a bit odd to have soft rules for Europe and hard rules for South Africa for example," he told this website.

Ban on credit default swaps

Speaking to MEPs, Mr Barroso also indicated the commission was ready to act on credit default swaps and other financial derivatives, widely blamed for exacerbating Greece's current difficulties and causing a fall in the euro currency.

Ahead of a draft directive on derivatives in the coming months, the commission president said a: "New 'ad hoc' reflection is needed on credit defaults swaps regarding sovereign debt."

"In this context, the commission will examine closely the relevance of banning purely speculative naked sales on credit default swaps of sovereign debt," he said. Going "naked" refers to the process of trading in CDSs, without ever owning the underlying asset, such as the government bond, that they are intended to insure against default.

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