CHANCELLOR ANGELA Merkel said the ratings downgrade of France and Austria had made clear the need for a “resolute, not watered-down” fiscal compact.
The German leader described the ratings downgrade as a reminder to “pick up the pace” on the “long road” of reform Europe has ahead of it.
“The decision confirms my conviction that we have a long way ahead of us before investor confidence returns,” she said. “The questions of surrounding euro zone debt cannot be answered in days or months, it is a longer-term process just as the debt was built up over a longer period.”
Dr Merkel said ratings agencies could not be allowed to “torpedo” reform efforts, but their downgrade was a timely reminder of the need for a “robust” agreement on euro zone fiscal rules. “We will also work particularly to implement the permanent stability mechanism, the ESM, as soon as possible – this is important for investor trust,” she said.
German officials have expressed concerns, public and privately, at efforts by their EU partners to loosen the link between meeting tighter debt rules and future access to the permanent bailout fund (ESM).
Former deputy finance minister Jörg Asmussen, now a board member of the European Central Bank, said the fiscal compact draft – without an explicit legal link – represents a “substantial watering-down of the earlier draft proposal”.
“These revisions, in my view, clearly run against the spirit of the initial general agreement on an ambitious fiscal compact,” said Mr Asmussen in a letter to negotiators of the intergovernmental deal.
Dr Michael Fuchs, parliamentary finance spokesman for Dr Merkel’s ruling CDU, said the downgrade “showed that we shouldn’t weaken the terms of the fiscal pact”. “The days of writing in escape clauses for fiscal austerity must be over, the stakes are too high,” he said.
Senior government sources in Berlin, however, concede the link between adherence to future budget rules and bailouts – the carrot and stick in the new fiscal rulebook – may be political rather than legal. Former ECB official Jürgen Stark, who resigned in protest over the bank’s bond-buying programme, has warned in a farewell letter that it is “an illusion to think monetary policy can solve large structural and fiscal problems in the euro zone”.
At a CDU party conference in Kiel, Dr Merkel backed a proposal for a new “German Bond” – a national version of the loathed “eurobond”. The idea would allow indebted German federal states borrow money at better terms in exchange for binding austerity plans. The CDU said it favoured the “swift introduction” of a financial transaction tax at euro zone level, “and to then push for introduction EU-wide and globally”.
“The tax should, however, be so formulated that it protects the interests of Germany as a base for financial services,” said the CDU. Dr Merkel’s Free Democrat coalition partners reject such a tax unless adopted by all EU members.