4th Jul 2022

Franco-German proposal attempts to side-step treaty change

  • French and German leaders have been at odds over how best to deal with recent eurozone difficulties (Photo: Council of European Union)

France and Germany have put forward a proposal that would enable greater political sanctions to be imposed on states that repeatedly break the EU's budgetary rules, but without the need for an immediate EU treaty change.

In a joint letter to European Council President Herman Van Rompuy, the two countries' finance ministers also call on member states to enact national laws to ensure budgetary responsibility, and appear to reject the European Commission's recent idea that financial sanctions be extended to all parts of the EU budget, including farm payments.

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Wednesday's letter (21 July) came after Wolfgang Schaeuble became the first German finance minister in recent times to attend a French cabinet meeting, a further sign that the two sides are keen to patch up their recent disagreements on how best to tackle Greece's debt crisis and the ensuing loss of confidence in the eurozone as a whole.

Earlier this year, Mr Schaeuble presented EU finance ministers with an ideas paper calling for governments that repeatedly break the EU's budgetary rules to be stripped of their voting rights in Council of Ministers meetings in Brussels.

But to date, the call has been largely opposed by Paris and other capitals, wary of embarking on another bout of EU treaty reform that such a move would likely necessitate. The latest initiative suggests neither side has changed their position, but proposes a temporary solution that could be hard to enforce.

"In the short-term, a non-binding political alternative could take the form of a political accord that would enable euro area member states either to bar an offending member state ... from taking part in specific votes or even specific deliberations, or to make a political commitment to neutralise the effect of that member's vote," Mr Schauble and Christine Lagarde wrote.

Stunned by the eurozone's recent debt crisis that had some forecasting an imminent breakup of the 16-member currency club, European politicians have been scrambling to overhaul EU deficit and debt rules laid out in the Stability and Growth Pact (SGP).

Tougher financial sanctions are also being considered as a means of enforcing stricter compliance, with a recent commission paper suggesting quicker and more automatic fines for fiscal miscreants, including the possibility of suspending all types of EU payments.

The move is popular with states such as Poland who fear the current emphasis on cohesion funding could discriminate against the region's poorer states, but does not seem to have won the support of Paris and Berlin.

"The sanctions should be proportionate to the extent of non-compliance with the provisions of the Stability and Growth Pact. They should relate to cohesion policy (structural and regional funds)," said Ms Lagarde and Mr Schauble.

A French diplomat explained to EUobserver that Paris had not completely ruled out the idea of applying sanctions to farm handouts, with "further discussion among the 27 EU states still possible."

But as European farmers prepare themselves for a further reform to the bloc's agricultural policy post 2013, talk of suspended farm payments could prove potentially explosive in a number of member states.

The finance duo also said that greater surveillance should be extended to private sector debt, identified as a key investor concern in the Spanish economy, where a low public sector debt going into the crisis was juxtaposed by the high level of liabilities held by many of the countries firms.

The joint letter calls for various other components, largely already agreed by EU finance ministers who have met several times under the auspices of Mr Van Rompuy's 'task-force'.

Embattled German Chancellor Angela Merkel may be hoping that the new initiative will help to stifle criticism of her handling of the eurozone's debt dilemma, as a series of recent resignations expose further cracks in her centre-right coalition.

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