Joint Merkel and Sarkozy letter to Van Rompuy

17 August 2011

France and Germany propose that all Member States of the euro area will transpose into national law a fiscal regime for a balanced budget by summer 2012, constitutionally anchored. They also propose a financial transaction tax.

See PDF attachment for full letter.

The euro is the foundation of our economic success and the symbol for the political unification of our continent. It represents the will of Europe to consolidate its internal development and to face the challenges of our time together. Germany and France consider it their historic mission to protect and strengthen the Economic and Monetary Union and thus the stability of the single currency with joined forces.

In recent months, the leaders of the euro area have taken all necessary measures to maintain the stability of the economic and monetary union. They have also made clear that all Member States of the euro area share responsibility for this, particularly through their budgetary and economic policy. Ever since then, the European Union and the Member States of the euro area have attempted crucial reforms to stabilise the Economic and Monetary Union.

Through the reformed Stability and Growth Pact, the new mechanism to address macro-economic imbalances, and the Euro Plus Pact, the coordination and supervision of economic and fiscal policy in the euro area should be strengthened, and we make sure that any deviation from the prescribed goals of these instruments will be rapidly detected and addressed. This pre-emptive policy plays a crucial role for the medium- and long-term stability of the euro area.

At the same time we have created with the European Stability Facility (EFSF), and mid-2013 with the European Stabilisation Mechanism (ESM), a toolkit to make targeted interventions if necessary for maintaining the stability of the entire euro area, always in the context of appropriate conditionality. All the Member States benefiting from the EFSF make significant efforts to combat the causes of the crisis, most prominently high public debt and lack of competitiveness.

All Member States of the euro area have pledged to cut quickly their deficits, to achieve a balanced budget at medium term, and to implement the necessary structural reforms for strengthening the competitiveness of their economies sustainably.

France and Germany are determined to implement all decisions of the Heads of State and Government of 21 July completely and in timely manner. Both countries emphasise how important it is to get by the end of September, the consent of their respective parliaments to all relevant decisions. They call on all Member States of the euro area to take appropriate measures to ensure that the new EFSF is fully operational by the end of September. France and Germany call for the rapid completion of the legislative package for the strengthening of the Stability and Growth Pact and the new macro-economic surveillance.

In relation to point 16 of the Declaration of Heads of State and Government of the euro area of 21 July, France and Germany propose to further strengthen the economic governance of the euro area in accordance with existing agreements.

1. Strengthening the control of the euro area

With the decisions of last year the aim is to increase stability and to promote growth in all Member States. In order to facilitate this process, the institutional framework of the euro area has to be strengthened and better organised, thus making the decision-making process more efficient and its institutions and processes better coordinated.

This framework should be based on the following proposals:

• Regular meetings of Heads of State and Government of the euro area. These meetings are convened twice a year, and if necessary for extraordinary sessions; they serve as a cornerstone of improved economic governance in the euro area. In particular, this would be the place to control the correct implementation of the Stability and Growth Pact by Euro-member states, to discuss the problems of individual Member States of the euro area and to take the necessary policy decisions for crisis response. These summits will also evaluate the development of competitiveness in the euro area and define the cornerstones of economic policy in order to promote sustainable growth, to strengthen competitiveness and to prevent the emergence of imbalances.
• The leaders of the euro area should elect a chairman.
• The Euro Group of finance ministers should be strengthened.

• To match the requirements of its new role, the ESM should received new analysis capabilities, particularly with regard to the analysis of debt and capital markets.

2. Better monitoring and involvement of the budgetary and economic policy

The Economic and Monetary Union must build on an even closer coordination of national fiscal and economic policy. This coordination should be further strengthened through the following proposals:

• On the basis of their obligations under the Euro Plus Pact, all Member States of the euro area will transpose into national law a fiscal regime for a balanced budget by summer 2012.
• All Member States of the euro area should immediately reaffirm their firm intention to implement European recommendations for budgetary consolidation and structural reforms rapidly.
• We will put up pressure to ensure that all governments and parliaments of euro area Member States will agree to adjust their budget proposals to any recommendations received under the European Semester.
• In line with the Euro Plus Pact, Member States of the euro area should take all necessary measures to increase competitiveness, create more jobs, ensure the stability of the euro area and strengthen economic integration.

• The structural and cohesion funds should be employed in support of the necessary reforms to promote economic growth and competitiveness in the euro area.

The aforementioned proposals should be implemented in a way that might be beneficial to the cohesion of the entire European Union. The European Parliament, the European Commission and national parliaments should participate in their respective responsibilities in the process. Under the provisions of the current Treaty, legal acts of the Union should be considered, including acts under Article 136 TFEU and within the framework of enhanced cooperations.

Finally, we want to keep you informed that we have decided to enter into a new stage of economic and budgetary rapprochement between our two countries.

To this end we made the following three decisions:

1. We have asked our Finance Ministers to elaborate a joint proposal for a financial transaction tax by the end of September to contribute to the deliberations of the European Commission.
2. We decided to meet at the beginning of each European semester to liaise about our economic and fiscal policies and to jointly define the macro-economic assumptions for our households. An initial meeting will take place in January 2012.
3. With regard to the 50-year anniversary of the Elysée Treaty, we have asked our Economic and Finance Ministers to develop proposals in regard to convergence and increased competitiveness of our economies.

We have specifically asked to prepare a proposal for a common corporate tax of our two countries, including harmonisation of the tax base and tax rates. This will be implemented from 2013.

Angela Merkel, Nicolas Sarkozy