GERMANY:CHANCELLOR ANGELA Merkel has ramped up her euro zone rescue rhetoric, saying treaty change to allow "binding" EU oversight of national budgets is an imperative step to stabilise the single currency.
Hours later Dr Merkel described the debt crisis as a “turning point” in EU history, European Commission president José Manuel Barroso – also in Berlin – warned euro zone members against the “logic of intergovernmentalism” and said a “split EU” would result if euro zone members rushed through reforms and left euro accession members behind.
Dr Merkel said she could no longer see a euro zone crisis solution that preserved the EU status quo, where national budgets had the potential to imperil the whole EU, with no means of intervention by European institutions.
“I’m of the view that we need a treaty change,” she said. “If [stability pact] agreements are not observed, a European institution must have the right to intervene in a budget being queried.
“With these measures in the background, national parliaments would, as a rule, present budgets that meet the goals of the stability and growth pact,” she said.
“Otherwise I support giving the commission or another member state the right to take the country in question to the European Court.” Dr Merkel’s remarks come amid a growing debate in Germany about whether the EU can produce meaningful reforms among its 27 members, or whether a euro zone avant-garde should proceed faster.
A decade after calling for a European federation, former foreign minister Joschka Fischer called for a two-speed Europe in a newspaper interview this morning.
“Let’s just forget about the EU with 27 members – unfortunately – I just don’t see how 27 states will ever come up with any meaningful reforms,” Mr Fischer told the Die Zeit weekly newspaper.
“We’ve got to watch out that we don’t lose Europe. There is a great risk of that happening at the moment. The Continent will survive without the euro but it would then, nevertheless, be dead as a political and cultural project.”
The notion of a 17-member euro zone avant-garde forging closer fiscal and economic ties via an intergovernmental deal has alarmed the European Commission.
Mr Barroso said yesterday that his commission saw its responsibility to “steadfastly uphold its role as the guarantor of all member states”.
“The EU as a whole and the euro area belong together,” he said in Berlin, and reminded his audience that, except for two euro zone opt-out countries, the EU treaties foresee all other members joining the single currency.
He described it as an “absurd” idea for the 17 euro zone countries to agree deeper fiscal and monetary integration without bringing along non-euro members. This would in effect, he said, represent an “opt-out” of the monetary core of the union from the European Union as a whole.
“Let me be clear – a split union will not work. That is true for a union with different parts engaged in different objectives; a union with an integrated core but a disengaged periphery; a union dominated by an unhealthy balance of power or indeed any kind of directorium,” he said. “All these are unsustainable and will not work in the long term.”
Meanwhile, Germany’s five economic “wise men” have proposed a new structure to pool at euro zone level all euro zone national debt above 60 per cent of GDP.
The proposal would see debt refinanced by loans from the European Financial Stability Facility, making the loans subject to firm EFSF-monitored repayment plans. The terms and interest rates of the EFSF loans could be structured to become increasingly unattractive the higher the debt-to-GDP ratio was, said the economists.
This “euro redemption pact” would, they said, stretch debt repayment over 20-25 years and take pressure off the already stretched EFSF. Within a few years the redemption fund could have a volume of €2.3 trillion worth of bonds, the study said.
The five economists had strong words for the ECB bond-buying programme, saying the Frankfurt institution was “jeopardising its credibility because it is falling under the suspicion of monetising sovereign indebtedness”.
Presenting their autumn economic forecast for the German economy – 3 per cent growth in 2011 – the economists, who advise the government, said growth would slow to 0.9 per cent next year.