16 October 2012

FT: Fiscal union highlights EU divisions

EU leaders are set for their first big debate this week on a German-led push to establish a fully-fledged fiscal union for the eurozone, with serious differences remaining between Berlin, Paris and other capitals on many of the key components.

A separate eurozone budget, single European banking supervision, binding budget contracts for eurozone Member States, and some form of jointly-backed borrowing to finance a eurozone treasury are on the agenda for the European summit, although no decisions are expected.

Wolfgang Schäuble, German finance minister, spelt out the maximalist German position, saying that full fiscal union would require EU treaty change at a convention next year. “We must now take bigger steps in the direction of a fiscal union”, Mr Schäuble said, calling for more powers for an economic supremo to veto profligate national budgets. “We must use this chance.”

But his call was played down by senior officials in both Paris and Berlin, arguing that no such move was yet necessary. “We do not need to revise treaties now”, a senior French official said. “There is a lot we can do under existing treaties.”

Almost all aspects of the plans tabled by Herman Van Rompuy, president of the European Council, with three fellow presidents – of the European Commission, the European Central Bank, and the Eurogroup of finance ministers – are still the subject of vigorous debate between the European capitals. But this week’s summit is only intended as a first discussion, with final decisions in December.

France’s approach on many of the issues puts Paris at odds with Berlin. Since taking power as French president in May, François Hollande has been more open about divergences with Angela Merkel, the German chancellor, than his predecessor Nicolas Sarkozy. France wants budgetary integration armed with “new solid mechanisms” such as eurozone bonds and a debt redemption fund. Such a eurozone budget should have countercyclical instruments to stabilise economies in recession. What Germany likes best about the Van Rompuy plan is the proposal for bilateral contracts between each eurozone member and the European Commission, binding national capitals to strict spending limits, including incentives, and penalties for breaking the rules.

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