Sunday

4th Jun 2023

France and Germany propose 'hair-shirt union'

  • Monetary union would be joined by fiscal union, but on the strict German model (Photo: Wolfgang Staudt)

At an EU summit on Friday (4 February), Germany and France are set to present a privately-constructed pact to deliver a true fiscal union alongside monetary union to the eurozone, but based on the Berlin model of growth.

The pair aim to construct a comprehensive solution to the debt crisis that will once and for all tame the beast of market turbulence.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The two states will unveil the broad outlines of the plan, which proposes harmonisation of corporate taxation and labour policies, over lunch at Friday's European summit in Brussels.

In what would be an unprecedented move towards common European spending decisions and labour markets under strict fiscal discipline, the "Competitiveness pact" as it has been named by its architects, will also seek to eliminate inflation-indexed wage agreements and move toward a common EU retirement age of 67.

The latter demand comes hot on the heels of a fearsome battle Paris waged against trade unions and young people last year over an increase in the retirement age from 60 to 62.

Countries would also be forced to amend their constitutions to forbid public deficits exceeding a certain percentage of GDP, similar to Germany's "debt break," which limits any new borrowing to 0.35 percent of GDP from 2016.

Should other member states agree to such exacting concessions, Germany now appears willing to agree to demands by other member states to boost the effective lending capacity of the €440 billion eurozone bailout fund and to allow the European Financial Stability Facility to expand its remit.

As part of the grand bargain, France said on Wednesday that it will introduce its own debt break, a constitutional balanced budget amendment Paris is describing as a "golden rule." Proposals along these lines will be presented domestically in the coming weeks.

Technical details of the Berlin-Paris concord will only be shown to the rest of the union next month.

"It is at the March summit that we will propose what we call the 'global package', which includes a certain number of elements including reinforced competitiveness and a better convergence of economic policies,"French finance minister Christine Lagarde told reporters on Thursday.

German Chancellor Angela Merkel flew to Madrid on Thursday to discuss the pact with Spanish Prime Minister Jose Luis Rodríguez Zapatero.

Upon arrival, she told Spain that its current austerity measures were insufficient and that she wanted, for example, to see wage indexing eliminated.

Nicolas Sarkozy has also proposed that the heads of the 17 states that use the single currency hold an annual eurozone summit to co-ordinate and assess the state of economic convergence. The pact targets eurozone members and is optional for those such as Sweden or the UK that retain a national currency.

UK sources on Thursday said they were not worried about being isolated from a hardcore of European states and were "quite relaxed about it."

"The eurozone can do what it wants to do. Decisions that affect the 27 would still be taken by the Ecofin Council [all 27 finance ministers]," a British official sai. "It should be remembered that there is quite a lot of Europe outside the Eurozone, not just the UK."

Market watchers however were sceptical that France and Germany could convince the rest of the bloc to go along with the pact.

"It's a distraction that's going to have very little chance of success in terms of agreement to implement it," one contact told EUobserver. "It's designed primarily for the consumption of the domestic German electorate, to move the focus away from the EFSF and German tax liability, but must be rightly seen by everyone else as a grand, ambitious set of headline proposals that ultimately won't go anywhere."

"With its very tough, sovereignty-eroding measures, it's very likely to be opposed by many member states," the source continued, although he believed that though much of the pact would be rejected, what would remain would be that countries that are bailed out would have to adopt constitutional balanced-budget amendments.

"What it will probably boil down to is that the quid pro quo for future access to bail-out funds is this constitutional change."

He described the move towards fiscal union as more akin to a "hair-shirt union", saying it was inappropriate to impose the German model on the rest of the eurozone. "After the disaster of the Stability and Growth Pact, this is more of the same thing multiplied, but anything multiplied by zero is still zero."

ECB: eurozone home prices could see 'disorderly' fall

The European Central Bank in its Financial Stability Review warned EU home prices could see a 'disorderly' fall as high mortgage rates are making houses unaffordable for households and unattractive for investors.

Adapting to Southern Europe's 'new normal' — from droughts to floods

Extreme weather events in recent months have worsened agricultural production in southern Europe, prompting concerns for authorities in Portugal, Spain, France and Italy. As countries will likely face dryer conditions, experts urge adaptation measures for the 'new normal'.

PFAS 'forever chemicals' cost society €16 trillion a year

Researchers found that global societal costs of the so-called forever chemicals or PFAS amount to €16 trillion per year. Meanwhile, the bigger producers of these chemicals are also among the ones spending the most to lobby EU policies.

EU: national energy price-spike measures should end this year

"If energy prices increase again and support cannot be fully discontinued, targeted policies to support vulnerable households and companies — rather than wide and less effective support policies — will remain crucial," the commission said in its assessment.

Double rejection for EU flagship nature restoration plan

MEPs from the agriculture and fisheries committees have voted to reject the nature restoration proposal — a key proposal that aims to halt biodiversity loss and reverse the degradation of ecosystems in the bloc.

EU: national energy price-spike measures should end this year

"If energy prices increase again and support cannot be fully discontinued, targeted policies to support vulnerable households and companies — rather than wide and less effective support policies — will remain crucial," the commission said in its assessment.

Opinion

EU export credits insure decades of fossil-fuel in Mozambique

European governments are phasing out fossil fuels at home, but continuing their financial support for fossil mega-projects abroad. This is despite the EU agreeing last year to decarbonise export credits — insurance on risky non-EU projects provided with public money.

Latest News

  1. Spanish PM to delay EU presidency speech due to snap election
  2. EU data protection chief launches Frontex investigation
  3. Madrid steps up bid to host EU anti-money laundering hub
  4. How EU leaders should deal with Chinese government repression
  5. MEPs pile on pressure for EU to delay Hungary's presidency
  6. IEA: World 'comfortably' on track for renewables target
  7. Europe's TV union wooing Lavrov for splashy interview
  8. ECB: eurozone home prices could see 'disorderly' fall

Stakeholders' Highlights

  1. International Sustainable Finance CentreJoin CEE Sustainable Finance Summit, 15 – 19 May 2023, high-level event for finance & business
  2. ICLEISeven actionable measures to make food procurement in Europe more sustainable
  3. World BankWorld Bank Report Highlights Role of Human Development for a Successful Green Transition in Europe
  4. Nordic Council of MinistersNordic summit to step up the fight against food loss and waste
  5. Nordic Council of MinistersThink-tank: Strengthen co-operation around tech giants’ influence in the Nordics
  6. EFBWWEFBWW calls for the EC to stop exploitation in subcontracting chains

Stakeholders' Highlights

  1. InformaConnecting Expert Industry-Leaders, Top Suppliers, and Inquiring Buyers all in one space - visit Battery Show Europe.
  2. EFBWWEFBWW and FIEC do not agree to any exemptions to mandatory prior notifications in construction
  3. Nordic Council of MinistersNordic and Baltic ways to prevent gender-based violence
  4. Nordic Council of MinistersCSW67: Economic gender equality now! Nordic ways to close the pension gap
  5. Nordic Council of MinistersCSW67: Pushing back the push-back - Nordic solutions to online gender-based violence
  6. Nordic Council of MinistersCSW67: The Nordics are ready to push for gender equality

Join EUobserver

Support quality EU news

Join us