The president-elect of the European Commission tossed out a huge number when he appeared before the European Parliament in July. Jean-Claude Juncker promised to raise €300 billion ($378.58 billion) for investments in Europe. Since then, the former prime minister of Luxembourg has been on a treasure hunt, but so far, it’s not going well.
Mr. Juncker quickly found full coffers, but he cannot touch the contents because the €450 billion ($567.88 billion) is set aside for the European Stability Mechanism, the euro zone’s bailout fund. The ESM exists solely to prevent European countries in the deepest financial trouble from going bankrupt. The fund is actually barely big enough to cover such an eventuality.
The ESM would be hopelessly inadequate to save a large country such as Italy, something that Europeans were painfully aware of at the height of the debt crisis. This rules out any use of ESM funds for other purposes. Both of the parties in the ruling right-left coalition in Berlin have rightly pointed this out.
But this doesn’t mean the German government should send the new European Commission chief back to Brussels empty-handed. The stagnation of European economies is not solely Mr. Juncker’s problem, of course. Germany must do its part. Until now, the German finance minister has limited his actions to supporting the European Investment Bank (EIB), but that’s not enough. If the EIB is supposed to hand out more loans for infrastructure projects and to small- and medium-sized companies, it also should have the funds at hand. There probably is no way to avoid a second capital increase for the EIB, even if it rips new holes in the budgets of E.U. member states.
Moreover, the euro zone must discuss what to do about the extreme economic difficulties in individual nations. No one can risk having France or Italy ultimately suffocating on a congested backlog of reforms, which would place the whole euro zone in danger with extremely negative consequences for the German economy. Cheap admonitions and repeated warnings to the ailing countries are simply not enough. A way must be found to force struggling countries to embrace crucial reforms while still offering them financial support.
Reforms in exchange for financial support – that was the deal German Chancellor Angela Merkel already proposed last year. At the time she came in for heavy criticism. But in the end, her concept may be the only one that proves to be viable.
To accomplish this, the euro zone needs a new common pot of money. The incoming European commissioners with responsibility for finance and the euro, Pierre Moscovici and Valdis Dombrovskis, speak coyly of a “finance facility.” In truth, they are talking about a precursor to a joint budget. Without one, the euro zone cannot survive in the long run.
Ruth Berschens is Handelsblatt’s bureau chief in Brussels. To contact her: firstname.lastname@example.org.