Lack of German government puts eurozone integration plans on hold

Euro_sign_Frankfurt [Gideon Benari / Flickr]

The collapse of talks on a new German government means that the eurozone’s ambitious plans for deeper economic integration could be put on hold, officials said on Tuesday (21 November).

German government coalition talks collapsed on Sunday night as the liberal FDP party pulled out after weeks of “exploratory” talks, plunging the eurozone’s most important economy into political uncertainty and raising the prospect of new elections.

Eurozone leaders are to set a direction for deeper euro zone economic integration at a summit in the middle of December, at which Germany’s input is crucial.

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Efforts to form a coalition government have failed, Chancellor Angela Merkel said yesterday (20 November), pitching Germany into its worse political crisis for decades, raising the prospect of fresh elections and causing the EU a serious headache.

“As long as Germany does not have a clear position, it will by default not agree to anything. Therefore, delay is the most likely option,” one senior official involved in the euro zone integration talks said.

The summit is to launch six months of work that would lead decisions in June 2018 on whether or not the single currency area should have a budget, a finance minister and a eurozone assembly in the European Parliament.

The deeper integration push, championed by French President Emmanuel Macron, also includes the transformation of the eurozone bailout fund into a European Monetary Fund and the creation of a sovereign insolvency mechanism.

France and Juncker disagree over eurozone priorities

France’s Economy and Finance minister Bruno Le Maire said that the priority should be eurozone integration before accepting new members, as European Commission President Jean-Claude Juncker defended this week.

“Things will go on hold until there is a formal acting German government,” a second euro area official said.

“At this stage I don’t see what steps the leaders could take in December or June for deepening euro zone integration when there is a German government without a mandate,” he said.

Some officials said that a potential delay in the euro zone integration talks was not a big issue because they concerned the future architecture of the Economic and Monetary Union (EMU), now encompassing 19 countries.

“There is nothing that makes new decisions on the EMU especially urgent, so I don’t believe this to be a real problem,” a third senior eurozone official said. “The June deadline can always be moved, if need be,” the official said.

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European Union finance ministers wrangled yesterday (6 November) over differences in plans to reform the euro common currency in the wake of last year’s shock Brexit vote.

But others noted the initial timing of the talks was to make use of a “window of opportunity” in 2018, when no major eurozone countries, except Italy, or EU institutions had to face elections and were therefore free to focus on euro zone reforms.

If the talks were delayed, decisions on key issues, often sensitive politically, could be pushed back towards 2019 – a year of elections to the European Parliament, the formation of a new European Commission and choosing new heads of the European Central Bank and the chairman of EU leaders.

An official involved in preparations for the December summit said it would go ahead as planned.

“National elections happening all the time, all over Europe, are no reason to stop our work,” the official said.

But others said they expected the mandate that leaders would give to the Commission for further work on eurozone integration would probably be weaker than it would have otherwise been if no German government is in place by then.

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