French folly

Say Non to France's Redistribution Plan

epa04717677 From L-R Italian Prime Minister Matteo Renzi, German Chancellor Angela Merkel, French President Francois Hollande and British Prime Minister David Cameron take part in a meeting during the EU Summit on migration in Brussels, Belgium, 23 April 2015. The leaders of the European Union meet in Brussels to tackle an escalating migration crisis and the daily arrival of hundreds of would-be asylum seekers ans migrants crossing the Mediterranean. EPA/EMMANUEL DUNAND / POOL [ Rechtehinweis: usage Germany only, Verwendung nur in Deutschland ]
Politicians, just say no.
  • Why it matters

    Why it matters

    France is a leading advocate of fiscal transfers between rich and poor euro-zone members but Germany, the wealthiest member, is not keen.

  • Facts

    Facts

    • French economics minister Emmanuel Macron has proposed transforming the euro zone into a full fiscal union.
    • The move would aid heavily indebted euro-zone members, but some argue they would be “let off the hook.”
    • Poorer euro-zone members already receive up to 5 percent of their GDP in E.U. aid.
  • Audio

    Audio

  • Pdf

The French economy minister Emmanuel Macron is calling for the euro zone to be modified into a transfer union, with a powerful single economic government in Brussels. A transfer union means richer euro-zone states subsidizing poorer ones, and there are three elements to the proposal.

First, member states should make more money available for a euro-zone budget. Mr. Macron does not say how much money, but the more, reportedly, the better. Second, an economic government should be introduced, which pushes through reforms and allocates transfers. Third, a euro-zone parliament should be established for the countries belonging to the euro zone.

How would this transfer union function? For one, there should be debt relief for the currently highly indebted nations, Mr. Macron argues. Otherwise, he says, economic recovery would be impossible. The minister also wants long-term transfers to poorer nations. He is furthermore calling for a form of insurance, or transfers, benefiting countries experiencing sudden crises.

What is to be made of it? The recommendation has considerable shortcomings. First, it is incomplete. A central challenge for the euro zone is the handling of overly indebted nations. Only credible insolvency proceedings can prevent the costs of excessive debt from being shifted to other countries. A transfer union institutionalizes this shift of debts and invites new debt excesses.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.