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28/09/2016

Hollande and Merkel join forces to push for eurozone integration

Euro & Finance

Hollande and Merkel join forces to push for eurozone integration

François Hollande and Angela Merkel discussed eurozone reform with Martin Schulz in January 2015.

[European Parliament]

Motivated by the urgent need for reform, the French and German heads of state will put aside their deep political differences and champion eurozone reform together. EurActiv France reports.

François Hollande and Angela Merkel will make a historic joint address to the European Parliament on Wednesday (7 October). Announced at the end of September, this intervention is the fruit of the efforts of European Parliament President Martin Schulz.

The idea was first raised at a dinner attended by the three leaders on 30 January this year.

While the refugees crisis has added a new dimension to the rifts within the European Union, the initial objective of this address was to deepen economic integration.

And it is the future of the Economic and Monetary Union (EMU) that is behind this French-German intervention, only the second in the history of the European Parliament. 25 years ago, Helmut Kohl and François Mitterrand took to the podium together to discuss the future of Europe after the fall of the Berlin wall.

The symbolism of the occasion is strong. Heads of state from two different political families rarely come together in this way if the situation is not urgent. “But it also shows that the relationship between the French and the Germans has become closer over the year 2015,” a source close to the two leaders told EurActiv.

>>Read: Ukraine crisis strengthens French-German relationship

Angela Merkel and François Hollande will each speak in the Strasbourg hemicycle for 15 minutes, and then answer questions from members of the European Parliament. This is a first: heads of state do not often voluntarily expose themselves to parliamentary grillings, especially not in the European Parliament.

EMU at the heart of the debate

The political intention is to promote the reform of the Economic and Monetary Union (EMU), the first stage of which could include changes at national level and new European directives. The next stage, a treaty change, is not currently on the cards, but the recent Five Presidents’ Report raised this as a possibility.

The proposals made in this report, presented at the hight of the Greek crisis, have so far received little attention.

A eurozone with more transfers?

In an interview with the Süddeutsche Zeitung, France’s Minister of the Economy, Emmanuel Macron was clear that the eurozone’s credibility would only increase if it had a larger budget. He also said there needed to be more fiscal transfers between countries, to give eurozone governments the power to “oversee the financial transfers needed when a country is affected by a crisis or to promote the reforms required to minimise the differences between economies”.

François Hollande said, “We have to think of new resources and guarantees to put this eurozone budget into place with the necessary parliamentary control.” Emmanuel Macron also stated that fiscal resources should be transferred to this European budget.

But in states whose single biggest outgoing is their national debt repayments, like Italy or France, transferring these resources would be a real headache. Especially as the economic impact of these transfers is not felt immediately.

The idea of increased transfers does not seem to tempt, the German Chancellor. Rather, Angela Merkel has called for a “small common budget” and expressed scepticism about any possibility fiscal transfers.

In August, she said, “We already have a certain amount of financial compensation with the system of net contributors and net recipients” of European funds. The richer countries, which are net contributors to the EU budget, give more than they receive through various European budget tools: the Common Agricultural Policy, Cohesion Funds, the Regional Development Fund and Europe 2020.

But the EU’s current budget is very limited. At €145 billion, it represents only 1% of European GDP. By comparison, France’s national budget is twice the size, for 10% of the EU’s inhabitants.

Open area or private club?

At the Ambassadors’ Week conference in August, François Hollande had already raised the more thorny subject of who would sit in his proposed new eurozone parliament.

“Of course some states may not go down this path. Firstly, those that are not in the eurozone, and others that are in the eurozone but do not necessarily want to move as quickly as us. This is what I call differentiated integration,” the French leader said.

The inevitable question that remains unanswered about this new political project regards its composition. Will the future eurozone be open to all comers, as François Hollande seems to suggest? Or will it rather be an exclusive club run by a select few from the Northern member states, as Germany’s Minister of Finance, Wolfgang Schäuble, would prefer?

Last June, the German minister said it would be better to strengthen cooperation among a band of core eurozone members than to exclude Greece from the currency union. He did not elaborate on his plans for Italy, Spain and Portugal, who would surely have trouble entering this select group, if it meant increasing their contributions to the European budget.

If it will not be wrapped up in Strasbourg on 7 October, at least the debate will have been opened.

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