It wasn’t a bad week for the euro zone. Greece was able to borrow money from the bond market for the first time in two years, securing €3 billion ($3.5 billion). The International Monetary Fund increased its growth forecast for the euro zone as a whole, especially for southern European members, which were hard hit by the financial crisis.
But despite the positive signals, the euro zone is hardly crisis-proof and much work remains to shore up the currency union. This was made clear by German Chancellor Angela Merkel two weeks ago, when she visited French President Emmanuel Macron in Paris. “We will not falter,” she promised on reform of the euro zone. “There will be further steps later this year.” Her French counterpart nodded in agreement as she spoke.
According to information obtained by Handelsblatt, the two leaders have been discussing the possibility of increasing cooperation within the euro zone with some but not all members of the currency union. The two opted not to reveal concrete proposals for these reforms. However, France is very interested in strengthening the monetary union, it’s being said in Berlin, “at all costs.” Mr. Macron is said to imagine a core group of countries within the euro zone.
“If our ambition to act together is not shared in the whole community, we have to find ways to move faster in a smaller group.”
“We do not want to formally exclude anyone,” is the talk in French government circles. However, Mr. Macron is believed to think it would be helpful to cooperate more closely on certain financial or political issues with countries willing to do so. Apparently this step had already been discussed during Mr. Macron and Ms. Merkel’s meetings.
In a speech at Berlin’s Humboldt University a few months ago, Mr. Macron, at the time a mere maverick candidate in France’s presidential election race, voiced his interest in a multispeed Europe. “The time has come for a decision,” he said. “If our ambition to act together is not shared in the whole community, we have to find ways to move faster in a smaller group.” Ms. Merkel is also known to have favored such an approach for some time.
The European Union has already formed a group of willing parties that are advancing together on defense policy. Insiders within the French government say that they want to see this approach in the monetary union, too. No one will be excluded and the door remains open, sources said, but with a smaller group it will be easier to accelerate integration.
Mr. Macron has focused his European diplomacy approach on this possibility. Since his election earlier this year, he has met and coordinated with the Italian, Spanish and Dutch leaders, as well as Ms. Merkel.
European unemployment insurance is another goal of Mr. Macron’s and one where a multi-speed Europe could come into play. This project wouldn’t necessarily include all 19 euro-zone members, according to the Franco-German talks. The scheme would be linked to the EU’s internal market and the free movement of workers, where a completely new constellation could be possible, including some of the 19 euro-zone nations as well as other EU countries. If implemented, this would create a Europe with several speeds.
Dividing the euro zone into different clubs would be a delicate process. But many in Berlin see a need for action beyond Mr. Macron’s impetus; the government is aware that the currency union’s position remains shaky.
Many of the southern European countries worst affected by the financial crisis are seeing their key economic data improve after years of reform, according to a study by the German finance ministry. Investor confidence in these countries has returned, the study found, but problems remain daunting. Among other challenges, the paper cites “high public debt levels” and the “many bad loans in the banking sector.”
Currently, the European Central Bank’s expansive monetary policy is masking several problems, according to the study, rather than addressing them. There are still “competition disparities” between the northern and southern European countries, the study noted, adding that Italy is in a “difficult situation” and that the Greek crisis continues to “smolder” despite its newly borrowed billions.
German Finance Minister Wolfgang Schäuble and his French counterpart, Bruno Le Maire, have tasked experts to propose concrete steps to strengthen the euro zone. Many options are possible, from the euro budget to the expansion of the ESM rescue fund into a European Monetary Fund. These measures share one common factor: a balance of interests between more solidarity, which Paris is calling for, and more solidity – at Berlin’s insistence. The leaders seek ways to combine the “contributions” of southern European countries with “complementary aid” from the northern countries.
Ms. Merkel and Mr. Macron have allowed themselves until the end of the year to find this balance and present their first proposals. In Germany, Ms. Merkel must first be re-elected in the election due in September.
Thomas Hanke is Handelsblatt’s correspondent in Paris. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin. To contact the authors: email@example.com, firstname.lastname@example.org