Euro Zone Reform

EU power play misses goal

RC18C9EEC940
The EU wants to concentrate more power in Brussels. Source: Reuters

The European Commission unveiled its ambitious program for euro zone reform on Wednesday, pushing ahead with its agenda despite intensive lobbying from Germany to hold off for now. The proposals to centralize more power with the commission have virtually no chance of being passed in the current climate and are not likely to even be considered at the EU summit next week.

“Shortly after elections in Germany and shortly before elections in Italy is the wrong time to make such proposals,” said Lucas Guttenberg at the Jacques Delors Institute in Paris. Germany is still mired in efforts to form a new coalition after the historic election in September put seven parties into parliament and deprived Chancellor Angela Merkel of an easy path to a majority. Italy will hold national elections early next year and currently the euro-skeptic Five Star Movement is leading in the polls.

Even in the best of times, however, the proposals put forward by commission President Jean-Claude Juncker would be at odds with stances taken by Germany. Notably, proposals to transform the euro zone bailout fund, the European Stability Mechanism, into a European Monetary Fund under control of the commission and to appoint a European finance minister will run into opposition in Berlin.

Mr. Juncker seems to be attempting a power play that is bound to fail. Ms. Merkel is not sitting in a penalty box and what may look like a political vacuum is actually a powerful force for resistance.

“Again and again, proposals are foisted on us that not only for us but for many member states are not capable of commanding a majority.”

German government officials

There is considerable bad feeling in Berlin government circles about how the commission rammed through its program despite their efforts to hold it up. Commission staff refused to share any details with the Eurogroup meeting in Brussels this week, even though the proposals sharply limit its authority. “Again and again, proposals are foisted on us,” one German official complained, “that not only for us but for many member states are not capable of commanding a majority.”

Berlin has no problem with renaming the ESM, but has a different idea of what the new EMF should do. For one thing, it would not become an EU institution subject to commission control. For another, it would be the EMF, no longer the commission, which would monitor and enforce the debt and deficit rules undergirding the euro. Needless to say, the commission doesn’t favor this curtailment of its authority.

Other commission proposals, such as allowing the ESM to directly inject new capital into ailing banks, were forcefully rejected by former German Finance Minister Wolfgang Schäuble. Peter Altmaier, who is acting as finance minister in a caretaker capacity, can hardly reverse Germany’s position on that question and it is impossible to know where a new government in Berlin will stand on the issue.

In general, the packet of proposed legislation and other suggestions presented Wednesday continue the commission’s efforts to centralize power in Brussels, whereas national leaders are wary of exposing their taxpayers to liabilities they have no control over. Under current practice, the ESM can only make loans to member governments, which can then bail out banks, while the government remains obligated to pay back the loan.

The proposal to name an EU finance minister who would both sit on the commission and head the Eurogroup has few supporters. The group this week elected Portuguese Finance Minister Mario Centeno as president to succeed former Dutch Finance Minister Jeroen Dijsselbloem. Not a single Eurogroup member has come out in support of the commission’s proposal. The group, which operates independently of the EU bureaucracy and has the final say on policies for the euro, represents the individual euro members and has no interest in yielding control to the commission.

Mr. Juncker would like to bring all operations regarding the euro, which now are conducted between the member states but outside the EU institutions, under the umbrella of the Lisbon Treaty, which serves as a constitution for the EU.

Other proposals include having the renamed EMF participate in a “stabilization function” to make preemptive loans to a member country to help ward off a brewing crisis. But economists from the Center for European Policy Studies, a neoliberal think tank in Germany, urged against it, warning that such a facility would lead to a lack of discipline. “The stabilization function harbors the risk that liability and control no longer go together,” CEPS economists Matthias Kullas and Bert Van Roosebeke said in a statement. “Financial transfers for member states that are hit by a financial shock reduces the individual responsibility to get ahead of the shock or to ensure its resolution.”

Ms. Merkel’s Christian Democrats are likely to have similar views regarding the commission plans. The Social Democrats, who are now willing to explore a new grand coalition with Ms. Merkel, tend to favor greater European integration, but much depends on the details. The SPD convention this week may help clarify where the party base stands.

In the meantime, Mr. Juncker is unlikely to score any points in Berlin with his attempted power play.

Ruth Berschens is Brussels bureau chief for Handelsblatt. Martin Greive is a reporter in Berlin. Handelsblatt Global editor Darrell Delamaide in Washington, DC, adapted this into English. To contact the authors: berschens@handelsblatt.com, greive@handelsblatt.com, and d.delamaide@extern.handelsblatt.com.

We hope you enjoyed this free article.

Subscribe today and get full access to market-moving news in Europe's leading economy.