Meeting in Paris, French Economy Minister Christine Lagarde and her German counterpart Wolfgang Schäuble presented their joint contribution to an EU task force on economic governance.
The task force, made up of the EU's 27 finance ministers and chaired by European Council President Herman Van Rompuy, is scheduled to present its conclusions during an extraordinary summit of EU leaders on 16 September.
"The key issue is to make major progress in developing both the preventive and the corrective arms of the Stability and Growth Pact," the two ministers said in the joint statement.
"We must move swiftly yet operationally, leveraging all options offered under the existing treaties," they added, saying the European Commission's proposals represented "a step in the right direction" (EurActiv 01/07/10).
States that fail to make sufficient progress on deficit and debt reduction should be forced to make an interest-bearing deposit with the European Commission, the two ministers said.
Speaking to journalists after the meeting, Schäuble went even further, saying Berlin had not ruled out "enhanced collaboration" between the 16 countries that share the euro currency.
Under the Lisbon Treaty's "enhanced cooperation" mechanism, nine or more EU member states can choose to move forward in a specific area, leaving other EU countries the option of joining later.
"If we need additional rules for the sixteen [eurozone countries], the other countries will not prevent us," Schäuble said.
The statement represents a U-turn for Germany, which has until now insisted that the same set of rules should apply across the 27 EU member states. In Paris, Schäuble indeed again warned against creating a "schism" between eurozone countries and other EU states.
But the joint statement, however, clearly represents a step in the opposite direction, suggesting "a political accord" that would enable euro-area member states to suspend the voting rights of serial budget offenders in the EU Council of Ministers.
Conscious that such sanctions would require changes to the EU treaties – a lengthy and risky exercise as the 2008 Irish referendum on the Lisbon Treaty showed – the joint declaration says "the legal basis for imposing such penalties must be studied in depth".
"This mechanism would have to be included in any revision of the treaty that may in future be agreed to," the statement adds, leaving open the possibility that the changes may be inserted into the accession treaty of an upcoming new EU member state such as Croatia.
"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 as described above 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."
Speaking to French newspaper Les Echos before the Paris meeting, Schäuble defended Germany's position that meaningful reforms will require treaty change.
"There is, among our partners, a bit of scepticism with regard to possible treaty changes. Many people say it is a long-term process," Schäuble admitted.
"However, if we consider that we cannot limit ourselves to imposing financial sanctions, and that we must also take into account non-financial instruments – such as the temporary withdrawal of voting rights – in order to make member states respect the pact, then treaty changes are necessary," he said.
Closer economic policy coordination
At the Paris meeting, Lagarde and Schäuble also pushed for closer economic union, saying "a single currency simply cannot work properly without enhanced economic policy coordination".
"The coordination and surveillance instruments available to us – the stability and convergence programmes and the Broad Economic Policy Guidelines, along with competitiveness reviews and financial stability analyses – need to be interlinked more effectively while remaining formally separate. Together with Europe 2020, they must provide the foundations for a genuine European economic strategy that generates growth and jobs."
Lagarde and Schäuble made the joint statement after a meeting of the French Council of Ministers to which the German minister had been exceptionally invited, a first in the history of the Fifth Republic.
Schaüble was in fact following a precedent set by Christine Lagarde, who travelled to Berlin in March to attend a meeting of German ministers (see EurActiv France).