German Eurofudge

Merkel reaches out to Macron on EU reforms

French President Emmanuel Macron Meets Angela Merkel In Berlin
Back to you, Emmanuel. Source: Getty

As anxiety continues to run high over Italy and trans-Atlantic trade, Angela Merkel gave a detailed response over the weekend to Emmanuel Macron’s plans for European reform. After months of dithering, the German chancellor came up with lukewarm compromises on almost every issue, as she faces political balancing acts at home and abroad.

In a wide-ranging interview with a German Sunday newspaper, the Frankfurter Allgemeine Sonntagzeitung, Ms. Merkel addressed the idea of turning the euro zone’s ESM rescue fund into a European Monetary Fund with powers to give short-term credit lines to members hit by sovereign debt troubles, for example, if Brexit were to send the Irish economy into a tailspin. The broad proposal appeared in the German coalition agreement signed last March.

Mindful of German mistrust of cross-border burden sharing, the chancellor emphasized that a new EMF would only offer bail-outs “in limited amounts, on tight conditions, and with full repayment.” She also said the EMF would remain under the authority of euro-zone states, in effect giving national parliaments some say over its decisions.

The chancellor backed an investment budget for the euro zone.

On Italy, Ms. Merkel said while cohesion among members of the single currency bloc was important, “solidarity among euro partners should never lead to a debt [sharing] union, rather it must be about helping others to help themselves.” The German chancellor made the remarks when asked about a media report that Italy’s anti-establishment 5-Star Movement and far-right League had planned to ask the European Central Bank to forgive €250 billion ($296 billion) of Italian debt.

Some European leaders – like Mr. Macron – take Rome’s political and fiscal crises as reason to push on with integration. But many, especially in Germany, are promoting continued caution, to protect German savers and taxpayers from a potentially huge financial exposure.

The chancellor also said she backed an investment budget for the euro zone, which would possibly be in the “low two-digit billions of euros” and gradually introduced to address structural weaknesses of member states.

On the topic of migration, Ms. Merkel appeared to see no quick implementation of a quota system for asylum-seekers on the continent. Most Eastern European states have shunned the deal, leaving countries like Greece and Italy complaining of unfair burdens.

“Solidarity among euro partners should never lead to a debt [sharing] union.”

Angela Merkel, Germany's chancellor

The German chancellor appeared to agree with Mr. Macron that a common European system of biometric registration and a common border police were indispensable. But she said the former might have to wait until agreement was reached on common asylum standards, a big hurdle on a continent bitterly divided on the issue.

Addressing European defense, Ms. Merkel said she supported Mr. Macron’s proposal for closer military integration but insisted it must function within the existing EU defense cooperation structure, known as Pesco. For Mr. Macron, Pesco’s existing cooperation on logistics and procurement don’t go nearly far enough. He wants to see hard-hitting European forces under a single command, ready and able to act swiftly around the globe.

The issue is complicated by Germany’s determination to retain domestic parliamentary control over its forces. Ms. Merkel did not budge on this point, insisting that German forces would remain a “parliamentary army,” with the Bundestag, Germany’s lower house of parliament, having ultimate say over any deployment. “Agreeing to a force does not mean we will participate in every military intervention,” she said.

macron
Macron gears up for global action. Source: DPA

As an alternative to EU defense forces, Mr. Macron has hinted at closer cooperation between France and the United Kingdom, western Europe’s two major military powers, both of which possess nuclear weapons. Ms. Merkel confirmed she could envision future British participation in European defense intervention forces.

The German chancellor insisted that questions of European reform were never simply a decision to made between her and Mr. Macron, or between Germany and France. On every issue, she said, coalitions must be formed which include other European states, including the Netherlands, the Baltic states and Austria.

But Ms. Merkel must also maintain a fragile equilibrium within her own governing coalition. Reacting to her comments, a parliamentary spokesperson for her own center-right Christian Democrats, insisted that Germany would not sign up for intra-European “transfer payments.” But Andrea Nahles, leader of the center-left Social Democrats in the ruling coalition, told the ARD public broadcaster Ms. Merkel’s remarks were “very pleasing” with “a totally new tone.”

Lars Ophüls is a reporter for Handelsblatt in Düsseldorf. Thomas Sigmund is the bureau chief in Berlin, where he directs political coverage. Jan Hildebrand leads Handelsblatt’s financial policy coverage from Berlin and is deputy managing editor of Handelsblatt’s Berlin office. Brían Hanrahan adapted this story into English for Handelsblatt Global. To contact the authors: hildebrand@handelsblatt.com, sigmund@handelsblatt.com

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