20 June 2012

Reuters: Merkel's fiscal union drive faces major hurdles

At the G20 summit in Los Cabos this week, Merkel worked to get US President Barack Obama and others behind her push to move towards a so-called fiscal union in Europe, where Member States would cede unprecedented power over budget policy to a central authority in Brussels.

Merkel’s hope is that by committing to a big leap forward in political and economic integration, Europe can correct the mistakes of the euro's founders like Kohl, and convince markets of its resolve to keep the currency. "These steps will show the world that Europe and the European project are irreversible", European Commission President, José Manuel Barroso, said in Los Cabos.

He is one of four top EU officials who have been tasked with making proposals at a summit of EU leaders in late June on how to achieve a fiscal union in Europe. But in the run-up to that summit and in the months that follow, Merkel faces a daunting set of obstacles that could disrupt her plans.

First, she must make up for lost time in explaining her vision to citizens at home and in the wider bloc who have grown sceptical about the benefits of the euro and European Union as the crisis has deepened, pushing up unemployment and plunging economies across Europe into recession. Despite littering her speeches with references to "political union" in past months, Merkel has yet to spell out how this would really look and how fast it can happen. Europe is not a passion for her, as it was for Kohl, compounding her challenge in selling the grand plan.

Merkel must also cope with the high expectations of G20 partners like the United States, which have only reluctantly embraced closer European integration as a solution to the crisis after she had shot down their push for more radical short-term steps, like joint eurozone bonds and cross-border bank deposit guarantees. Some saw the language of the G20 communiqué in Los Cabos as another sign of Berlin's newfound readiness to compromise. In it, European countries acknowledged that they were considering moving towards a so-called banking union, with bank resolution tools and an integrated deposit guarantee scheme that Germany has until now been cool on.

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