European Commission proposals to see EU governments submit their budget plans for peer review before they are voted upon in national parliaments has caused some countries to fear that their sovereignty is threatened (EurActiv 12/05/10).
Divisions were also exposed by a German ban on short-selling earlier this week, which Berlin apparently imposed without warning its EU partners, frustrating Paris and the European Commission (EurActiv 19/05/10).
The move further destabilised markets and stunned France, with senior officials in Paris openly criticising Berlin for failing to coordinate such a sensitive move. Finance Minister Christine Lagarde said France would not follow Berlin's ban.
Telephone diplomacy
German Chancellor Angela Merkel telephoned French President Nicolas Sarkozy after the public rift to iron out misunderstandings.
A German spokesman said Sarkozy and Merkel had agreed to present joint proposals for a European economic growth strategy to EU leaders in mid-June and to coordinate positions at a G20 summit next month on a new global financial rulebook. Sarkozy will visit Berlin on 7 June to discuss coordination, he said.
On Thursday (20 May), Sarkozy denied that the two countries were at odds over how to respond to the eurozone debt crisis.
"I told Angela Merkel that there cannot be disagreements between France and Germany on subjects of this importance," he told reporters. "We do not have disagreements together."
Sarkozy was speaking at a joint news conference with British Prime Minister David Cameron, who was making his first foreign trip since taking office last week and is due to meet Merkel in Berlin on Friday.
Cameron said the UK wanted the euro to be strong, but reaffirmed that Britain would not participate in a multi-billion euro rescue package drawn up earlier this month by EU nations.
"Let me be absolutely clear it is in Britain's interest that the euro zone is a success," he said.
Sanctions
Furious at having to dig deep into its pocket to help Greece, Germany wants to see sanctions imposed on eurozone countries that in future fail to honour deficit commitments.
Sarkozy said he had talked about the issue on Thursday with Merkel, but questioned whether suggestions of slapping financial penalties on budget laggards would only aggravate the problem.
"We need to think up more efficient sanctions. The chancellor made some propositions. I myself proposed suspending their voting rights [within the European Union]," he added.
"There is total agreement between me and the chancellor on the need to think about new sanctions," he said, adding that the Stability Pact which underpins the euro currency needed to be broadened and become more transparent and more efficient.
"Between now and June we will work on this with the [German] chancellery," he said.
France to enshrine budget discipline into constitution
France itself has singularly failed to balance its budget, and, no doubt chastened by market chaos, Sarkozy announced earlier on Thursday that tackling the deficit should be enshrined in the constitution.
The move, if enacted, would bring Paris much closer to Germany in its approach to state finances.
The constitutional amendment outlined by Sarkozy is however far less constraining than Germany's "debt brake", which is intended to force the federal government to limit the deficit to 0.35% of national output by 2016.
But the fact that free-spending France is contemplating such a measure at all highlights how the debt crisis is forcing all 16 states in the euro zone to give new priority to cutting debt and deficits.
"This reform will oblige each government coming out of an election to engage in a five-year path dealing with the deficit," Sarkozy told a conference, adding that governments would have to commit to a deadline for balancing public finances.
Concerns over euro
Concerns are growing that the EU, which represents more than 500 million people, will miss the best chance in years to agree on far-reaching reforms to stabilise the euro.
"The EU will have to cobble something together by the end of this year but it is an open question whether it will be meaningful or not," said Daniel Gros, director of the Centre for European Policy Studies think-tank.
He said the 27 member states could find it is much harder to secure a deal on closer economic surveillance in talks that will last several months than it was to reach agreement on the 750 billion euro safety net under pressure from financial markets.
"If you're in a situation where you have months to agree and everyone wants it be as perfect as possible on paper, but in reality containing as few constraints as possible on member states, the situation is completely different," Gros said.
He said a meaningful deal might also be harder to come by if the euro recovers after falls in recent weeks and the 16-country euro zone's sovereign debt crisis eases, reducing pressure on EU leaders to carry out far-reaching reforms.
Commission proposal
Under the Commission's proposal, presented on 12 May, EU countries will review each others' draft annual budgets before they are adopted at national level.
The surveillance would be carried out in the first half of the year during a "European semester," before EU governments prepare their national budgets and economic reform programmes.
"In case of obvious inadequacies in the budget plans for the following year, a revision of [national budget] plans could be recommended," the Commission says.
This system – if approved by EU leaders at a meeting in June – would apply as of 2011 and would introduce closer economic surveillance in the bloc, with an early peer-review system aimed at preventing a repeat of the Greek sovereign debt crisis.
"Let's be clear: You can't have a monetary union without having an economic union," stressed European Commission President José Manuel Barroso.
"Member states should have the courage to say whether they want an economic union or not. And if they don't, it's better to forget monetary union all together."
(EurActiv with Reuters.)
