Tuesday

4th Oct 2022

Germany gets its way on reform 'contracts'

  • Merkel claimed to have a 'general commitment' for binding reform contracts (Photo: Council of European Union)

German Chancellor Angela Merkel on Friday (25 October) said fellow EU leaders during a summit in Brussels have "accepted the principle" of binding reform contracts that will transfer further sovereignty from a national level to the European Commission.

Merkel was cautious not to make "false promises" that a deal on this extra level of EU scrutiny will be achieved already in December, as details still need to be ironed out.

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"But there is a clear commitment that we want to go beyond the current procedures in the European Semester," she said, in reference to current recommendations the European Commission is issuing for each country about their labour markets, pension systems and the like, but which are hardly ever implemented.

Merkel said the binding contracts would increase the level of "ownership" of reforms at national level, which tend to become sluggish once the economy picks up.

Leaders discussed this issue and the yet-to-be-established banking union on Thursday night for about two hours, one EU source told this website.

But the source was more sceptical than Merkel about the level of agreement on this German plan, as several leaders did not seem to understand what these contracts would be about.

A deal may be reached at the next EU summit in December, in return for Germany agreeing to the contested "single resolution mechanism" for failing banks.

Merkel has patented this tit-for-tat policy at EU level, also dubbed "salami tactics" in German media.

She agreed to the setting up of a eurozone bailout fund only when countries signed up to a "fiscal compact" enshrining a deficit ceiling in national constitutions.

She said Yes to banks being directly propped by this fund only when a single supervisor for eurozone's largest banks would be created.

Now, a fund for failing banks and ultimately more bills for taxpayers will only get the green light if countries sign up to these binding contracts.

A German official before the summit said Berlin would "continue our persuasion efforts with tenacity" and listed labour markets, efficiency of exports and innovation as parts of the economy that could come under this extra scrutiny.

The official noted that a recent study done by the European Central Bank showed that only ten percent of the commission's recommendations last year were transposed so far by member states.

"We have a clear problem with transposition and implementation in the field of economic coordination. Macro-economic imbalances also lead to situations where a country is forced to ask for financial assistance, raising the question if the current procedures are identifying the risks early enough. So the goal of this economic coordination has to be that aid requests become less probable," the official explained.

In the summit conclusions, leaders agree that "co-ordination of economic policies needs to be further strengthened, notably by increasing the level of commitment, ownership and implementation of economic policies and reforms in euro area member states, underpinned by strong democratic legitimacy and accountability at the level at which decisions are taken and implemented."

"To this end, it will already hold a discussion in December ... with the aim to agree, on the basis of the relevant indicators, on the main areas for coordination of economic policies and reforms," the text adds.

It lists precisely the areas mentioned by the German official: labour markets, efficiency of the public sector, research and innovation, adding education, employment and social inclusion.

"Work will be carried forward to strengthen economic policy coordination, with the objective of taking decisions in December on the main features of contractual arrangements and of associated solidarity mechanisms," according to the summit conclusions.

The contracts would engage all eurozone states, allowing non-euro members to participate voluntarily, as they did when signing up to the fiscal compact.

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