German finance minister defends euro reforms against conservative attack

(L-R) Germany's Minister of Interior, Construction and Homeland Horst Seehofer of the Christian Social Union (CSU), Minister of Finance Olaf Scholz of the Social Democratic Party (SPD) and German Chancellor Angela Merkel of the Christian Democratic Union (CDU) sit together in the government's bench during a session of the German 'Bundestag' parliament, in Berlin, Germany, 16 May 2018. [EPA-EFE/HAYOUNG JEON]

Germany’s finance minister on Wednesday (20 June) defended a euro zone reform blueprint agreed with France against criticism by Chancellor Angela Merkel’s conservatives that it could undermine monetary stability.

Members of Merkel’s conservative bloc opposed to larger financial contributions to the euro zone criticised her agreement with French President Emmanuel Macron to create a common budget for the currency bloc. They said they were not briefed on the plan ahead of time and threatened not to back it.

Merkel and Macron hailed a “new chapter” for the euro zone after talks at the Meseberg retreat outside Berlin on Tuesday where they praised the budget as a tool to strengthen economic competitiveness in the currency union. But details were scant.

Unravelling the Macron-Merkel agreement

A meeting between Angela Merkel and Emmanuel Macron was meant to foster a breakthrough on possible eurozone reforms. But the declaration brokered on Tuesday (19 June) is full of language that leaves a lot of room for interpretation. EURACTIV Germany reports.

CDU/CSU divided over euro zone reform

Merkel’s conservative bloc is divided over immigration and stiff resistance to the euro zone plans could further erode her authority and threaten to unravel her coalition government three months after it took office.

Finance Minister Olaf Scholz, whose Social Democrats (SPD) are Merkel’s junior coalition partners, said in a speech at a banking event that the euro zone budget was only a small component of the reform package agreed with France.

“We are standing at a crossroads and we have decided to go down a well-paved street called the European Union,” he said.

He also defended a proposal to create a Europe-wide unemployment insurance system, saying it would make the euro zone more resilient to economic shocks.

Conservative lawmakers, especially from the Christian Social Union (CSU), the Bavarian sister party of Merkel’s Christian Democrats (CDU), are not convinced.

“The CSU will not be part of any attempt to join a transfer union,” Markus Blume, the Bavarian party’s general secretary, told the Ausburger Allgemeine newspaper. “Financial robustness and monetary stability are non-negotiable for the CSU.”

German politics risks affecting eurozone reform

The leaders of France and Germany’ will meet in Berlin on Tuesday (19 June) for a preparatory summit ahead of the European Council at the end of the month. But the two countries continue to hold different views on the subject of the economy. EURACTIV.fr reports.

CSU claims it was “not included”

CSU leader Horst Seehofer criticised Merkel for not briefing the CSU ahead of the agreement with Macron.

“It’s not good style when such important agreements are made and the CSU is not included,” he told the Passauer Neue Presse newspaper. “That’s not okay.”

He said his party would not back the agreement until it had received a detailed accounting of its projected costs at a special meeting of the coalition parties on Tuesday.

Merkel said on Tuesday the new budget would be used to strengthen economic convergence within the euro zone, which was almost torn apart by a debt crisis that took hold in 2009.

Macron wins Merkel's backing on budget for eurozone

French President Emmanuel Macron on Tuesday (19 June) won German Chancellor Angela Merkel’s backing for reforms that are aimed at bolstering the eurozone against crises, including a vaunted budget for the bloc.

CSU attacks “shadow budget” for the euro

Macron said the euro zone budget would be operational by 2021 with annual revenues and spending.

The two leaders had decided to focus on broad issues to leave more room for negotiations with the other 17 euro members, which leaves scope for the plans to be watered down.

National contributions and European resources would be used to fund the budget, the leaders said in their declaration.

“The European Union will have a shadow budget for the euro zone,” CSU lawmaker Hans Michelbach told Reuters.

“For us this is more like splitting Europe because countries that are not using the euro will be excluded. I am stunned by the promise that was given to Macron,” he added, referring to Merkel’s support for a euro zone budget.

France tells Germany ‘it’s now or never’ to save the EU

France called today (8 June) for more ambition from Germany in reforming the euro zone, saying Europe faced a “now or never” moment with rising external threats from the United States and China.

EU banking union and insurance scheme

Scholz said however that differences over plans to introduce an EU-wide deposit guarantee scheme were still to be bridged. Germany and eight other EU members say euro zone banks must first reduce exposure to risks before the project can start.

Deposit insurance for the euro zone is one element still missing from an EU banking union. It would bolster the confidence of savers and protect deposits of up to €100,000 in any euro zone bank.

“Much remains unclear and should be made public, including the size of the new euro budget and the level of German contributions,” said CDU lawmaker Eckhardt Rehberg, parliamentary speaker on budget policy for the CDU/CSU.

He said the conservatives would not lend Merkel and Scholz support for the creation of a Europe-wide unemployment insurance system nor for a euro tax to fund additional spending plans.

Under the system, a euro zone member facing an economic crisis that leads to massive job losses and a heavy burden on its social-security system could borrow from a joint reinsurance fund.

Unemployment peaks to trigger new investment shield

A spike in unemployment numbers would give EU countries access to €30 billion of soft loans to maintain investment in times of economic turbulences, according to proposals unveiled by the European Commission on Thursday (31 May).

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