German Chancellor Angela Merkel delivered a long-awaited answer to French President Emmanuel Macron’s call for ambitious European Union reforms on Sunday (3 June), offering olive branches on investment and help for debt-mired eurozone member states.
More than a year after Macron took office with the stated mission to bolster the EU and make it more responsive to its citizens, Merkel’s counter-offer comes at a time of heightened concern about the future of the bloc due to political turmoil in Italy and Spain and transatlantic tensions.
“Investment budget” for the euro zone
Merkel told the Frankfurter Allgemeine Sonntagszeitung ahead of a crunch EU summit this month that Germany as the eurozone’s top economy would support an investment budget whose total would be “at the lower end of the double-digit billions of euros range”.
She said the “rainy day fund”, as it has been dubbed, would serve to help even out economic imbalances between richer and poorer European countries “which need to catch up in the areas of science, technology and innovation”.
“We need quicker economic convergence between the member states,” she said. “To do that we have to strengthen investment capability with the help of additional structural policies,” the Chancellor said, adding that the fund would be phased in gradually and then evaluated in terms of its effectiveness.
Although Merkel’s budget target falls short of the range proposed by Macron, it represents a concession of sorts to his view that excessive austerity has undermined faith in the bloc.
In Paris, the presidential Elysée Palace hailed what it said was a move “towards the French view”. “This is a positive move which shows the commitment to Europe of the chancellor and her government,” the Palace said.
“It’s the only possible way to strengthen to eurozone and the European Union. We remain fully committed to it and have the same level of ambition.”
European Monetary Fund (EMF)
Merkel also supported the suggestion – originally a German idea – of turning the eurozone’s ESM rescue fund into a European Monetary Fund (EMF) with powers to give members hit by sovereign debt troubles short-term credit lines.
The European Stability Mechanism (ESM) is an intergovernmental body which oversees bailout loans to troubled member states, such as Greece. It was set up in the midst of the eurozone crisis in September 2012 and has a lending capability of €500 billion.
“We aim to make ourselves a little more independent of the International Monetary Fund,” she said, underlining that the EMF would complement other measures to strengthen the euro, including a banking and capital markets union.
“If the whole euro zone is in danger, the EMF must be able to grant long-term credit in order to help countries,” Merkel told the paper. “Such loans would be spread over 30 years and be conditioned on sweeping structural reforms.”
She added: “In addition I can imagine the possibility of a credit line that is short-term, five years for example. As such, we would be able to take under our wing countries that get into difficulties because of extraordinary circumstances.”
However, she insisted that short-term credit lines to stricken countries should come with strict conditions: “always subject to special conditions of course, for a limited amount and with complete repayment”.
And she also said the future EMF should be organised on an intergovernmental basis, ensuring national parliaments of member countries have oversight on how the money is used.
While cohesion among members of the single currency bloc was important, “solidarity among euro partners should never lead to a debt union, rather it must be about helping others to help themselves,” Merkel said when asked about reports that Italy’s new government had planned to ask the European Central Bank to forgive €250 billion of Italian debt.
France still pushing for “ambitious agreement on the monetary union”
Germany and France, traditionally seen as the twin engines of European integration, plan to hold talks before the EU summit at the end of the month to coordinate their positions on reform of the bloc after Britain’s exit next year.
A French government source said, however, that more work still needed to be done for an “ambitious agreement on the monetary union”.
Merkel and Macron will meet together with their top ministers at the Meseberg palace outside Berlin on June 19 to finalise a joint roadmap for reform of the euro zone. They will then seek approval for the plan from fellow European leaders at a summit on June 28-29.
The EU summit is seen as the last chance before European elections in May 2019 to get a few tangible projects on the road and demonstrate to frustrated voters Europe’s ability to deliver on its promises.
Macron has repeatedly expressed impatience with what he sees as foot-dragging by Merkel, who was tied up with five months of coalition building after an inconclusive general election in September.
“Don’t wait, act now,” he said as he picked up a prize in Aachen last month, urging Germany to overcome its “fetish” for budget and trade surpluses and back reforms even if it meant loosening the purse strings.
SPD welcome Merkel’s “totally new notes”
Merkel’s comments were welcomed by the Social Democrats (SPD), junior coalition partners of her conservative bloc in a right-left coalition that took power earlier this year after an election in September.
“This is very pleasing,” SPD leader Andrea Nahles told the ARD public broadcaster. “Those are totally new notes from Mrs. Merkel.”
The SPD have been critical of the conservatives’ focus on austerity in the euro zone and had pressed Merkel to engage more actively with Macron on his reform proposals.
Crises roiling Europe have focused minds in recent days, with a populist and Eurosceptic government taking power in Italy and Spain ousting veteran Prime Minister Mariano Rajoy over a corruption scandal and his Socialist arch-rival Pedro Sanchez taking over.
Transatlantic relations have at the same time grown increasingly rocky due to a series of combative decisions by US President Donald Trump, including scrapping the 2015 Iran nuclear deal and imposing tariffs on steel and aluminium imports.
On Italy, Merkel sounded a conciliatory note despite the anti-German rhetoric of the governing parties, which have argued that Berlin’s austerity policies have helped bring many indebted countries in southern Europe to their knees.
She said she was “absolutely open to talking to the new Italian government about ways to help young people find work” given high levels of youth unemployment.
However Merkel, whose political power has diminished in her fourth term as her ruling majority has shrunk, insisted she would draw the line at German taxpayers assuming responsibility for other nations’ debt.
“Solidarity between partners should never lead to a union of debt — it must be about helping others to help themselves,” she said.
In the interview, Merkel also threw her weight behind a proposal by Macron to create a European military intervention force outside NATO.
Berlin had long been sceptical of the move due to its stronger transatlantic posture on defence and the state of its own military, which it has acknowledged is under-funded and poorly equipped.