After a summit of EU leaders in December, German Chancellor Angela Merkel announced that there would be greater economic coordination to fight the sovereign debt crisis. However, the German term she used to express this idea raised eyebrows at home.
The German word 'Wirtschaftsregierung' is much stronger than the term that has been used until now, 'Wirtschaftssteuerung'. Indeed, the former has generally been shunned in Berlin, as it implies establishing a new powerful institution in Brussels rather than just pursuing simple coordination expressed through the word 'governance'.
In an interview with German magazine Der Spiegel, Merkel explained her understanding of the term 'Wirtschaftsregierung' differently.
According to her, it already exists in the shape of the European Council taking common decisions to enhance competitiveness by "learning from the best".
The instruments for the new economic governance are as yet undecided, but an agreement is expected for June 2011.
Many are wondering if there will soon be common taxes and working hours across the European Union, as well as whether the pension age will be harmonised and whether it will be EU leaders who take these decisions.
There is broad agreement that a common currency cannot function without common economic and fiscal policies. The European Central Bank (ECB) in Frankfurt is faced with the impossible task of fulfilling the needs of a number of very different economies by setting just one common interest rate, and it even buys the bonds of debt-stricken countries to act as a 'bad bank'.
France has indicated that it would not be happy simply to 'learn from the best' if this were to mean adapting to German practices.
French Finance Minister Christine Lagarde has demanded that Germany must also adapt to the situation, particularly by being more considerate and not boosting its exports at the expense of its neighbours.
That approach is unlikely to find many supporters in Germany.
German dissent
In Germany, Economy Minister Rainer Brüderle said that embracing economic governance as a means of preventing future crises was the wrong approach altogether.
The Christian-Socialist Union (CSU), a junior partner in the governing coalition, also expects economic governance to be a failure. Instead, it merely advocates common macroeconomic goals and claims that other member states must follow "the German culture of fiscal stability".
German Green MEP Sven Giegold condemned such an attitude and denounced what he called the German culture of wage dumping.
Finance Minister Wolfgang Schäuble advocates economic governance and points out that Helmut Kohl in 1991 already thought such coordination was necessary to underpin the common currency.
Yet Schäuble also wants democratic legitimacy for such economic governance and warns that there must be no European 'superstate'.
Enhanced cooperation?
Lagarde is proposing enhanced cooperation between the sixteen countries of the euro zone plus whoever else may care to join. Her argument is that the UK is unlikely to join, as according to UK Prime Minister David Cameron, any transfer of powers to Brussels would have to be accepted by referendum.
Berlin, on the other hand, wants all 27 member states to join, which would also serve to water down rules on economic governance and make it less intrusive.
EU Council President Herman Van Rompuy's 'Task Force on Economic Governance' submitted their recommendations in October 2010. These supported the German view that the Stability and Growth Pact must be strengthened and greater fiscal discipline enforced.
However, regarding competitiveness, the report demands changes from all member states, including Germany. Its position is nonetheless clear: the weakest must catch up urgently.
