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16th May 2022

Merkel: Transfer more powers to EU, not more money to bail-out fund

  • Merkel held the opening speech at the Davos Economic Forum (Photo: World Economic Forum)

German Chancellor Angela Merkel has said transferring more powers to EU institutions rather than increasing the size of the eurozone's future bail-out fund is the way to overcome the euro crisis.

"We have said right from the start that we want to stand up for the euro, but what we don't want is a situation where we are forced to promise something that we will not be able to fulfil," Merkel said Wednesday (25 January) in the opening speech of the World Economic Forum, an informal gathering of leaders and business magnates held every year in Davos, a Swiss mountain resort.

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Merkel resisted calls made by the International Monetary Fund and the Italian Prime Minister to increase contributions to the European Stability Mechanism, set to come into force in July with a firepower of €500 billion and aimed at lowering the borrowing costs of large euro-economies such as Italy and Spain.

“Some say that it has to be double the size, then if that’s not big enough, others will say it has to be three times as big,” she said.

“If Germany, as the representative of all European countries, promises something that can’t be kept in the event of a harsh attack by the markets, then Europe would have a wide-open flank."

Instead, her solution is more 'integration', by transferring more powers from a national level to EU institutions such as the European Court of Justice, so that the continent is “turned into a Europe that works.”

"We have taken some steps closer to a fiscal union, but we can get faster, gain speed and become more decisive," she added, in reference to the inter-governmental treaty on fiscal discipline currently being negotiated among 26 member states, except Britain.

She made similar remarks in an interview published earlier that day in five major newspapers from different EU countries, including The Guardian:

"We will only be able to strengthen our common currency if we co-ordinate our policies more closely and are prepared to gradually give up more powers to the EU. If we make loads of promises about debt reduction and sound budgeting, those need to be things that can be enforced or brought to court in the future. The point of the fiscal compact, after all, is to make it possible to check on those commitments. That means giving our [European] institutions more monitoring rights – and more bite."

Merkel also warned in that same interview that "amid all the billions in financial assistance and rescue packages, we Germans also need to watch that we don't run out of steam. After all, our capacities aren't infinite, and overstretching ourselves wouldn't help us or the EU as a whole."

She is expected, however, to budge on the issue in March, when EU leaders meet to discuss potentially increasing the fund. In the past, she had also steadfastly ruled out any further contributions to bail-outs or the establishment of the permanent ESM, only to give in after painful negotiations - a tactic which has been criticised both at home and abroad.

No more Merkozy?

Meanwhile, her ranking as the de facto supremo of Europe has been highlighted by the plethora of top European politicians and financiers she received in Berlin ahead of an EU summit taking place in Brussels on 30 January.

The leaders of Portugal, Sweden, Austria, Belgium, Italy and IMF chief Christine Lagarde all visited Merkel in the past few days, with Spain's Prime Minister Mariano Rajoy set to do the same on Thursday.

"It's not even Merkozy anymore, it's just Merkel now," one senior EU diplomat noted, in reference to the Franco-German tandem named after Nicolas Sarkozy and Angela Merkel.

The French president is struggling to regain voters' confidence ahead of the April presidential elections amid high unemployment rates and a downgrade of France's top credit rating by Standard & Poor's.

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