06 June 2012

Worldcrunch: Is Germany finally ready for a real European fiscal union?

A wind of change is sweeping through Berlin, as Finance Minister Wolfgang Schäuble declares the need for stronger banking cooperation in Europe. Is this the big shift that can save the single currency?

German Finance Minister, Wolfgang Schäuble, has declared the need for a “real fiscal union” in Europe. Schäuble said the lack of coordination between currency and financial policies in Europe needs to be addressed before there can be any joint debt management. The idea of a banking union, with a pan-European deposit guarantee and supervisory authority, he said in an interview this week, would be the next step.

The remarks signal a major shift in Berlin in the face of recent news that Spain needs more money but that the markets are de facto closed to it at present interest rates (7 per cent for 10-year bonds). And yet, Spain has to recapitalise its banks, and looks increasingly likely it will need a bailout. Meanwhile, in Brussels, Berlin and Paris don’t seem to be giving much thought to what’s going to happen in Greece after the elections.

So is what’s presently coming out of Berlin just rhetoric? Werner Weidenfeld [a political scientist at Munich’s Ludwig Maximilian University (LMU)] doesn’t think so. “With the fiscal pact, Europe will already be half-way there”, he says. Wolfgang Schäuble sees it that way too. The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, which was signed last December after two months of negotiations, should be incorporated into EU law within five years. By then, according to Weidenfeld, the German government hopes to have paved the way for a functional Europe, which also means signing agreements on issues like banking and fiscal unions.

European ideas on the latter diverge -- to France and Italy “fiscal union” means pan-European revenue sharing, while to Germany it means having more say in national budgets. But one thing is clear: before Europe has anything even close to a fiscal union, there will be more meetings.

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Original article 'Die falsche Europarhetorik', © Tages-Anzeiger

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