30 August 2018

Financial Times: Germany cools on Macron eurozone budget proposal

Germany is cooling on the idea of a eurozone budget, one of French president Emmanuel Macron’s central demands, saying priority should be given to other initiatives to boost the currency bloc’s resilience.

Jörg Kukies, Germany’s deputy finance minister, said in an interview that plans to equip the euro area with its own pot of money to fight financial firestorms should not distract from broader talks on the EU’s next multiannual budget, which is set to run from 2020 to 2027.

“Why should we weaken the EU by establishing a parallel structure?” Mr Kukies told the Financial Times, adding that the “most pressing issue” was to figure out “how the EU budget can contribute to stabilisation, competitiveness and convergence”.

This is “a more relevant question than carving out a separate budget for the eurozone”, he said.

The tougher German line is bad news for Mr Macron, who has made a common pool of money for the single currency area a central plank of his EU policy.

The French president has argued for a permanent “fiscal capacity” that would be financed by national contributions and also, potentially, new EU taxes and levies. It would be used to foster growth and competitiveness in the currency bloc and to stabilise countries hit by economic shocks.

Mr Macron has said that this budget should be equivalent to several percentage points of the eurozone’s gross domestic product, so running into hundreds of billions of euros.

France has made clear that its plans are fundamentally different to the EU budget, which totals about 1 per cent of the bloc’s GDP, and which is largely made up of seven-year spending programmes covering everything from agricultural subsidies to scientific research.

The French president and his government have urged Berlin to get behind the plan, and appeared to secure a breakthrough in May when German chancellor Angela Merkel and Mr Macron jointly agreed to the idea of a “eurozone budget” funded by “national contributions, allocation of tax revenues and European resources”. It would, the pair said, invest in “innovation and human capital”.

But Mr Kukies said that Germany’s priority would be to look at more targeted initiatives in the EU’s next multiannual budget that could help countries in difficulties. “We clearly support the idea that a currency area also requires fiscal instruments,” he said.

One such proposal, made by German finance minister Olaf Scholz, is for a “reinsurance fund” for national unemployment schemes.

The idea is that a recession-hit eurozone country with high unemployment, whose social security system has come under strain, could borrow from such a fund, and then pay the money back once it had resolved its problems.

Some governments are sceptical that even this idea has a chance of being realised. [...]

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