Merkel urges greater fiscal and political union

Fri, Jun 8, 2012, 01:00

GERMAN CHANCELLOR Angela Merkel has called for a more “intensive” political and fiscal union as the best answer to the euro zone crisis.

Her call comes as Germany faces renewed pressure to give ground on its opposition to aid for Spanish banks, a message brought to Berlin yesterday by British prime minister David Cameron.

“We need more Europe – not only a monetary union, but we also need a so-called fiscal union, in other words more joint budget policy,” said Dr Merkel. “And, most of all, we need a political union, meaning we need to gradually give competencies to Europe and give Europe control.”

Hours before Mr Cameron arrived, the chancellor delivered a swipe at the British leader, stating her determination to push aside EU stragglers and move ahead with integration.

“We already have in certain areas . . . a quasi two-speed Europe,” she told German breakfast television, citing the Schengen borderless travel area and the single currency. “That will increase. Whoever is in a currency union will have to move closer together. We have to be open about this, and make it possible for all to participate, but we cannot stand still just because one or another [country] doesn’t want to come along.”

At a joint press conference Mr Cameron said he shared Dr Merkel’s view that there was “no contradiction” between growth and budget discipline but said the fiscal treaty – which Britain has declined to ratify – was “important but not adequate” as a solution to the euro zone crisis.

“I have no doubt that euro zone countries want deeper integration,” he said in Berlin. “But Britain will not participate in this integration.”

Yesterday marked another round in a familiar choreography of crisis: calls from Berlin’s partners to act quickly to address the euro zone crisis, prompting the German leader to dig in her heels.

Even if she believed the crisis could be solved in one “bold stroke” – which she does not – Dr Merkel senses pressure at home not to agree to any crisis measures that open the door to unlimited German transfers to EU neighbours, either directly or through banks.

“If everyone is liable for everyone else, that leads to carelessness,” warned the mass-market Bild yesterday. “And in the end, someone has to foot the bill – under current scenario: German banks and, in the end, German savers.”

Pushed by one side to act and another to stand firm, there are nevertheless signs that Dr Merkel is preparing a compromise.

First yesterday’s interview, delivering a clear “more Europe” message to Germans over their breakfast. Then yesterday afternoon the end of a stand-off with opposition parties over ratification of the fiscal treaty before the summer break.

In exchange for opposition support, guaranteeing the two-thirds Bundestag majority required to ratify treaties, the ruling Christian Democrats have agreed to push for a new financial transaction tax in as many EU states as possible.

Details of the tax will be agreed next week by German party leaders, but proposals circulating foresee a tax of up to 0.1 per cent on trades in all financial products, including derivatives.

Dr Merkel’s gesture to the opposition was a defeat for her Free Democrat junior coalition partner: it was steadfastly opposed to anything beyond a British-style share stamp duty.