EU Reform

A Tepid Welcome From Berlin

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What do you say, Berlin? Commission President Juncker unveils proposals for EU reform. Source: Reuters

Usually, Chancellor Angela Merkel is quick to rebuff calls to make Brussels more powerful, so one might have expected a firm “Nein” from Berlin to European Commission Chief Jean-Claude Juncker’s sweeping proposal to enlarge the single currency zone, appoint a European finance minister and set up a European Monetary Fund.

But the German government’s reaction to his keynote speech on Wednesday was surprisingly benign. In fact, Ms. Merkel’s chief of staff, Peter Altmaier, praised the speech as “forward-looking and important.”

With just 10 days left until the general election, Ms. Merkel’s conservatives are evidently reluctant to be accused of dismissing suggestions for EU reform. And so Ms. Merkel’s spokesman said she “welcomed” Mr. Juncker’s proposals, even though the prospect of an enlarged euro zone must send shivers down the spines of German officials after years of bailouts bankrolled by Berlin for debt-ridden euro members.

While Finance Minister Wolfgang Schäuble agreed in principle with Mr. Juncker, he warned against any hasty decisions. “Countries should first be able to cope economically with a strong and stable currency that they won’t be able to control by depreciating it,” Mr. Schäuble told public broadcaster ARD. If countries became part of the euro zone too quickly, it could cause problems like those Greece has been struggling with since 2011, he added.

“If we want the euro to unite rather than divide our continent, then it should be more than the currency of a select group of countries.”

Jean-Claude Juncker, President of the European Commission

In his annual State of the Union speech, Mr. Juncker called on EU governments to seize on the bloc’s economic upturn and on Britain’s exit from the EU to build a closer union with ever more countries adopting the euro, converging tax and welfare standards and a European monetary fund to make the currency union more resilient in future crises.

“The wind is back in Europe’s sails,” Mr. Junker told the European Parliament, referring to improved economic growth, the easing of debt and refugee crises and the rejection of euroscepticism in elections in Austria, the Netherlands and France following last year’s Brexit vote. “Now we have a window of opportunity, but it will not stay open for ever,” he said.

Mr. Juncker is proposing to upgrade the Commission to be the central authority within the EU, and to promote the Commissioner for economic and monetary affairs to be a Europe-wide economic and finance minister who would chair the Eurogroup, the committee of finance ministers from the 19 countries that use the euro currency.

The EU’s bailout fund, the European Stability Mechanism set up during the debt crisis, is to be turned into a European Monetary Fund under Mr. Juncker’s proposal so that the bloc won’t be dependent on the International Monetary Fund for a financial bailout in future crises.

“If we want the euro to unite rather than divide our continent, then it should be more than the currency of a select group of countries,” Mr. Juncker said. “The euro is meant to be the single currency of the European Union as a whole.”

But his plans don’t chime with Berlin’s view of the future of the EU.

Ms. Merkel has been talking about a multi-speed Europe with some nations pushing ahead with closer integration.

To be sure, Ms. Merkel, who is widely tipped to win a fourth term in the election, and her finance minister, Mr. Schäuble, also want to set up a European Monetary Fund. But they’re more in favor of strengthening euro member states and Mr. Schäuble says he could even imagine trimming the powers of the Commission and handing its role of supervising national budgets to the stability mechanism.

Newly elected French President Emmanuel Macron and Ms. Merkel are preparing their own plans for EU reform and plan to submit them by the end of the year. Ms. Merkel has been talking about a multi-speed Europe with some nations pushing ahead with closer integration. It’s difficult to see how that fits with Mr. Juncker’s proposals.

EU diplomats said Mr. Juncker doesn’t want his EU reform ideas to be interpreted as a rejection of Mr. Macron’s proposals. They’re intended instead to build a bridge between the German and French positions. However, the Commission chief did reject proposals, led by France, for a special euro-zone budget and parliament.

He was praised for that by the vice president of the European parliament, Alexander Graf Lambsdorff of Germany’s pro-business Free Democratic Party, who said: “A euro zone budget would repeat the mistakes of the past so it was right and important to rule it out.”

Germany is worried that a common budget would encourage member states to relax their budget discipline at the expense of Germany, which is the biggest contributor.

Mr. Juncker’s vision of expanding the euro zone is in line with the Lisbon Treaty that reformed the bloc’s bodies and envisages all EU member states joining the euro zone with the exception of Denmark and Britain that negotiated opt-outs. But since the outbreak of the euro crisis, which at one point triggered fears of the breakup of the monetary union, no one has seriously talked about adding new members.

To do so was bold, and it won him some kudos in Berlin. “Juncker has shown the right path towards the unity of our continent,” said German Foreign Minister Sigmar Gabriel, a senior member of the center-left Social Democrats.

However, economists including the president of Germany’s Ifo economic research institute, Clemens Fuest, were skeptical. “An immediate expansion of the euro to the entire EU would be counterproductive,” he told the online service of German news magazine Focus. “It would look like a desperate attempt to drive forward faltering integration by force.”

German opposition politicians also criticized the suggestion, warning that millions of people in Europe were suffering from the austerity measures imposed in return for bailouts to stay in the euro.

“Mr. Juncker seems to have taken leave of his senses,” said Sahra Wagenknecht, one of the leaders of The Left party, which is the successor to Germany’s Communist party. “The currency union is already destroying industries and jobs in many countries while it poses a risk to savings deposits and life insurance policies in Germany.” She was referring to the ultra-easy monetary policy set by the European Central Bank in the crisis which has pushed interest rates to record lows.

“The proposal to get further countries that are at a completely different state of development into the euro zone betrays a lack of economic understanding or enslavement to the wishes of German exporters,” she said.

Jan Hildebrand and Martin Greive are correspondents for Handelsblatt in Berlin. Till Hoppe is a correspondent in Handelsblatt’s Brussels bureau. To contact the authors: hildebrand@handelsblatt.com, greive@handelsblatt.com and hoppe@handelsblatt.com

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