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European leaders kick off fiscal union debate

Published 16 December 2010 - Updated 19 August 2011
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Moves towards greater fiscal union are on EU leaders' notepads at a summit which opened in Brussels today, the German European Minister, Werner Hoyer has told EurActiv.

France and Germany broke a taboo last week by saying they would take steps to align their tax and labour laws in order to foster greater convergence in the euro zone.

French President Nicolas Sarkozy and German Chancellor Angela Merkel suggested similar steps could even be applied to the rest of the euro zone eventually.

The two leaders said they would present "structural" proposals next year in the area of economic coordination, but declined to elaborate.

"Of course it would be desirable in terms of a real stronger and more visible convergence," Hoyer told EurActiv. "But this is a long term perspective."

Hoyer's words suggest that Berlin is no longer opposed to policies that sounded unpalatable before the euro zone crisis erupted this year, culminating in a bailout for Greece and Ireland which was largely financed by German taxpayers.

In an interview with the Wall St Journal last month, German finance minister Wolfgang Schäuble mooted that "Europe will find steps toward further unification" when asked if the euro zone crisis would lead to a fiscal union.

The wider problem within the euro zone – how to accommodate divergent economies within a monetary union – may now be tilting towards proponents of fiscal integration. 

But the subject is still a thorny one in some European capitals and the terms used in public debate will doubtless be selected carefully.

"I don't know what fiscal union is," a poker-faced Werner Hoyer told EurActiv. "I want more convergence but this is a very widely spread issue because you need to move completely different systems of social or societal integration together." 

"It is a challenge for decades and not just for a summit."

Deeper political and economic integration

On the eve of the current summit, German Chancellor Angela Merkel told the Bundestag that that the euro was a collective destiny for the continent, and that the issue of pooling risk was also "about a deeper political and, relating to the euro zone, economic integration."

Berlin has long opposed calls by Spain and others to move towards a full-fledged 'fiscal union' in the euro zone, arguing that tax and employment policies should remain fully decided at national level. 

In contrast, France has traditionally favoured economic integration as a way of shackling the German economic powerhouse to the rest of the continent.

At a summit in Freiburg last week,German Chancellor Angela Merkel said that the moves would foster the convergence of euro zone economies and "show this is not just about currency issues but also about political cooperation, which has to be deepened."

"We are talking about labour law, about tax law, and if we are to improve the coherence of the economic aspects of the euro zone, then we should target these issues step by step and propose solutions," she added.

For his part, Sarkozy said that the two nations had agreed to a convergence of German and French tax policies and pledged that they would jointly table "structural answers" to the euro zone crisis in the first weeks of the new year.

The precise details of the policy coordination are still being hammered out by finance ministers.

But the revival of the issue may hearten countries such as Spain whose previous calls for fiscal union had been rebuked by Berlin.

Open to discussion: Merkel
Background: 

France and Germany have surprised observers last week by stating their openness to discussing whether countries that share the euro currency should also harmonise fiscal policy.

Berlin has long opposed calls to move towards a full-fledged 'fiscal union' in the euro zone, arguing that tax and employment policies should remain fully decided at national level.

But Merkel's openness to discuss the issue signals a step change in policy from Berlin.

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