GERMANY AND France faced a backlash from some of their key EU allies in their drive to establish a European competitiveness pact in return for measures to reinforce the euro zone bailout fund.
At an EU summit in Brussels, German chancellor Angela Merkel and French president Nicolas Sarkozy proposed pan-euro-zone limits on business taxes, national debt and pension ages and a scrapping of index-linked wage-determination. But as an hours-long lunch discussion continued late into the evening, the atmosphere was said to have resembled a “bloodbath”.
A swathe of northern European countries such as Britain, Belgium, Sweden, the Netherlands and Austria expressed opposition to the initiative. Eastern countries like Poland and Romania are also opposed. This is in addition to Irish opposition to the two countries’ corporation tax reform proposals, a stance supported by Malta, Slovakia and Estonia.
Belgian caretaker prime minister Yves Leterme said he was opposed to any plan that included doing away with index-linked wage increases. “There must be more economic co-operation, but member states must be left the room to carry out their own policies,” he said. “Each member state has its own accents, its own traditions. We will not allow our social model to be undone.”
According to European diplomats, such resistance was common at the summit. “They were told you couldn’t just impose a Europe of two. The Poles in particular are saying you cannot exclude us from this,” said a diplomatic source. “A large number of countries questioned the wisdom of this initiative . . . whether on the tax side, the social side, whether it’s undermining the single market. . . the euro itself.”
The Franco-German initiative would see a new intergovernmental body policing fiscal discipline and economic policy harmonisation throughout the 17-country, single-currency area. This has met resistance from the European Commission, whose powers the plan would dilute.
Despite resistance Dr Merkel has indicated the proposed pact is crucial to the restoration of competitiveness. “Germany and France will make it very obvious that we intend to defend the euro as a currency – that is only what is to be expected – but we also want to defend it as a political project,” she said. “What we want to ensure is to safeguard prosperity and wealth for the people in our countries. But we must increase our competitiveness, and the yardstick or benchmark should be the member state that shows the best practices . . .”
Germany and France wanted to make it clear they wanted the euro zone members to grow together “more closely at a political level, which is not to say that there should not be a competition for the best solution among the member states”.
Mr Sarkozy said Germany and France were working “hand in glove” to defend the single currency. “We want to ensure the convergence of different European economies . . . We therefore agree on a structural plan that is designed to respond to the challenges that Europe faces,” he said.