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4th Mar 2024

Merkel outlines minimalist EU reform

  • Angela Merkel with Emmanuel Macron (c) on his recent visit to Berlin (Photo: bundeskanzlerin.de)

Germany has backed the idea of an EU bailout fund, but ruled out "debt union", in a minimalist version of French plans.

The EU should create a European Monetary Fund (EMF), a new institution, to grant loans to debt-struck member states, German chancellor Angela Merkel told the Frankfurter Allgemeine Sonntagszeitung (FAZ), a national newspaper, on Sunday (3 June).

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  • Macron put forward his vision in speeches and TV interviews over the past year (Photo: elysee.fr)

"If the whole eurozone is in danger, the EMF must be able to grant long-term credit in order to help countries. Such loans would be spread over 30 years and be conditioned on sweeping structural reforms," she said.

"In addition, I can imagine the possibility of a credit line that is short term, five years for example. As such, we would be able to take under our wing countries that get into difficulties because of extraordinary circumstances," she added.

The eurozone should have its own investment budget, she said, but this should be little more than €10bn a year and should be phased in.

The moves, designed to prevent another existential euro debt crisis, should be complemented by an EU banking union, Merkel also said.

Her comments represented Berlin's first detailed reaction to French president Emmanuel Macron's grand vision for EU reform.

But the more conservative chancellor declined to put Germany's wealth at the EU's full disposal, saying little on Macron's plan for a joint bank deposit guarantee scheme.

She also favoured intergovernmental euro governance over deeper monetary union and disdained his idea for a big-splash eurozone budget.

"Solidarity among euro partners should never lead to a debt union, rather it must be about helping others to help themselves," Merkel told the German newspaper.

Her comment on debt came after a populist government in Italy pledged to boost welfare and cut taxes, in what would blow a hole in EU fiscal rules.

"I will approach the new Italian government openly and work with it instead of speculating about its intentions," Merkel told FAS.

The German leader backed Macron more squarely on EU defence integration.

Europe should have its own military intervention forces with a "common strategic military culture", she said.

It should give member states the choice whether to take in asylum seekers from frontline countries or to help pay for their care instead, she added, in a concession to Hungary and Poland, which have opposed binding EU quotas on migrant-sharing.

The EU should also have its own border police and a pan-European migration agency to evaluate asylum applications, she said.

The chancellor's remarks followed months of near-silence on Macron's proposals amid coalition-forming in Berlin.

"This is very pleasing. Those are totally new notes from Mrs Merkel," Andrea Nahles, the head of the centre-left SPD party in the German government, which is more open to EU wealth-pooling, told German TV.

But Merkel's proposals were the least she could have done to match those of France, a former advisor to Macron, Philippe Martin, told the Reuters news agency.

"It's the minimum so that there is no big rift between France and Germany at a time when it would be extremely damaging," Martin, who now works for the Council of Economic Analysis, a think tank in the French capital, said.

"What is good is that for the first time Merkel has said something precise," he added.

The difficult times concerned not just Italy, but also Brexit, and the unfolding trade war with the US, which has put German car exports to America in the firing line, a second expert said.

"My sense is that she needs Macron now," Laurence Boone, a former aide to the previous French leader, Francois Hollande, told Reuters.

"Germany, with its trade surplus and car industry, is the country that is most vulnerable to [US leader Donald] Trump. Merkel has something to gain from European solidarity," Boone, who is now an economist at French insurance firm Axa, said.

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