German officials indicated that German Chancellor Angela Merkel and French President Nicolas Sarkozy had overcome differences in recent weeks to forge a rough blueprint for a deal that balances French demands for closer economic coordination and Germany's push for more fiscal discipline.
"Of course we are talking with France about this [economic coordination] and are largely in agreement," the senior German official said, requesting anonymity.
"Therefore I expect that the chancellor and the French president will present these ideas together at lunch [at Friday's summit]."
Competitiveness pact
In a draft seen by Reuters last week, Berlin wants eurozone countries to enshrine German-style deficit and debt limits in their national legislation, tie their pensions policies to demographic factors and move towards harmonisation of corporate tax and labour policies.
This "pact for competitiveness" would include harmonisation of the retirement age to 67 years. which is likely to meet resistance in France ahead of a presidential election next year.
A harmonised corporate tax rate is also likely to infuriate Dublin, which has made its low company tax a matter of national sovereignty during negotiations over an EU/IMF bailout.
Berlin is also pushing to abolish wage indexing in Belgium and Portugal, a proposal which is likely to ruffle feathers there.
And Spanish Prime Minister José Luis Rodriguez Zapatero said in an interview in German daily Handelsblatt that Germany needed to make more concessions on its plan to harmonise tax, labour laws and retirement ages.
Debt-brake
In an apparent nod to Berlin, France announced on Wednesday that it would reform its constitution to include a "golden rule" on balancing the budget.
"This is a reshaping of our constitution which will fix a clear objective of budgetary equilibrium and will see the means of achieving it," said François Baroin, French government spokesman and budget minister.
The reform would be presented to parliament in the coming weeks and would set a date for France – where generous welfare provisions have led to a perennial deficit – to achieve a fiscal balance.
Rise of bailout fund in return
In return for other European partners agreeing, Germany appears ready to meet the demands of other euro members that the European Financial Stability Facility (EFSF) be given additional powers.
Set up in May after the shock bailout of Greece, the fund has a headline number of 440 billion euros but for technical reasons can only lend about 250 billion euros.
Germany now seems ready to boost its effective lending capacity to the full 440 billion and possibly allow it to lend to vulnerable countries like Greece so that they can repurchase their bonds at a discount.
Eurozone sources in Brussels said governments of the currency bloc were also seriously considering letting the EFSF buy bonds of distressed governments on the primary market, when they are auctioned by the issuing country.
German officials say they are still mulling whether to allow the EFSF to provide short-term credits to troubled eurozone members but have ruled out the idea of the facility itself buying the debt of single currency bloc members on the secondary market.
The senior official said the broad anti-crisis package to be agreed in March would not include a deal on a successor to Jean-Claude Trichet as president of the European Central Bank.
Bundesbank President Axel Weber is seen as the leading candidate to replace Trichet, whose term expires in October, but the German's public criticism of the ECB's bond-buying programme soured France and other southern euro states on his candidacy.
(EurActiv with Reuters.)
