FRANCE AND Germany have said euro zone member states must achieve deeper economic and budgetary harmonisation before single currency countries can issue “euro bonds” with a common guarantee.
German chancellor Angela Merkel and French president Nicolas Sarkozy declared “convergence” plans for their countries’ tax systems after a joint cabinet meeting in Freiburg yesterday.
Their talks came as the European authorities examine whether they might downgrade the triple-A credit rating of the euro zone bailout fund to increase its lending capacity.
Amid increasing demands from the European Central Bank (ECB) for more decisive action to tackle the sovereign debt crisis, EU leaders are coming under pressure to intensify their effort to bring the turmoil to heel.
Both Dr Merkel and Mr Sarkozy oppose increasing the fund and demonstrated little enthusiasm yesterday for euro bonds, a long-debated concept which was revived this week by Luxembourg and Italy.
“We have made clear that communitarising interest rates and risk doesn’t help us further,” said Dr Merkel. The chancellor warned of “imbalances” in the euro zone and called for a “coherence of economic policy”, remarks that suggest Berlin is warming to the long-held French desire for an EU “economic government”.
“We are concerned with a greater coherence in our economic policy,” said Dr Merkel, adding she was not interested in “communitarising risk”.
Mr Sarkozy backed the chancellor, saying the “euro is Europe” and a “non-negotiable part” of Europe’s future. “We can perhaps talk about [euro bonds] one day, when European economic and political integration is far more advanced . . . At the moment I have exactly the same position as the chancellor.”
When Germany dismissed the “euro bonds” proposal earlier this week, Luxembourg’s prime minister Jean-Claude Juncker accused Berlin of “simplistic” and “anti-European” behaviour.
Dr Merkel brushed off those claims and received backing from Paris, although the remarks in Freiburg suggest the “no” from Dr Merkel and Mr Sarkozy is not to be understood as “never”.
A working group at the French-German finance ministry has begun exploring the prospects of closer harmonisation of tax systems – though not tax rates – between the countries.
The French initiative is expected to see Paris adopt some German tax structures. Mr Sarkozy wants to replace France’s two-tier wealth tax – controversial for dragging too many people into its net – with the German model, which is controversial for leaving too many people out.
Officials familiar with the negotiations say there is a “shared will” to achieve convergence of French and German corporate tax systems and tax calendars, to increase bilateral trade.
Officials say they have no problem if other countries express interest in the convergence initiative, saying “everyone can join”.
German politicians insist the initiative is about strengthening the single market rather than preparing the way for euro bonds in exchange for tax harmonisation.
“That could be done over time, but the unanimity principle means [tax harmonisation] could not be done without Ireland on board,” said one senior official.
