FRANCE AND Germany have vowed to remain at the “forefront” of euro zone reform, announcing plans for bilateral corporate tax harmonisation and co-ordinated national budgets.
After two hours of talks in Paris, President Nicolas Sarkozy and Chancellor Angela Merkel presented proposals for greater euro zone governance, a financial transaction tax and fiscal harmonisation as ways to stabilise the single currency.
“We are aware that this is a step- by-step process that cannot be agreed at once, but we are convinced it is right for Europe,” Dr Merkel said at a press conference.
“On economic policy, we are ready to show that France and Germany can move closer together and have chosen corporate tax as an example for stronger harmonisation of both tax base and rates.”
Mr Sarkozy said: “We have to converge. The status quo is impossible.”
Last month, euro zone leaders agreed new powers for the euro zone rescue fund. Yesterday’s meeting was seen as a political bridge until parliamentary approval for the measures, expected next month.
The proposals will be sent to European Council president Herman Van Rompuy as the Franco-German contribution to EU negotiations over further euro zone reforms.
Minister for Finance Michael Noonan welcomed the announcements by the German and French leaders, but emphasised any constitutional change to limit national deficits was a matter for consideration by the Irish Government. He pointed out there was no agreement at EU level for the levy on financial transactions proposed by the two leaders.
Mr Sarkozy and Dr Merkel said a financial transaction tax in the EU “has absolute priority” for France and Germany, while joint corporate tax proposals should be adopted by 2013.
Financial markets in the US reacted negatively after the press conference, held after European markets closed, with analysts complaining the announcements lacked detail. In New York, the Dow Jones Industrial Average fell 1.3 per cent but later recovered.
Dr Merkel welcomed moves by France to introduce a limit on budget deficits in the constitution, following a German model, calling it a move all euro zone parliaments should follow. “It should be adopted with something more than a simple parliamentary majority to lift it beyond day-to-day politics,” she said.
Ahead of parliamentary adoption of new powers for the European Financial Stability Facility rescue fund, the two leaders urged renewed efforts to cut spending and boost euro zone competitiveness.
They suggested EU members should allow the European Commission greater powers to intervene in the spending of EU funds in countries failing to meet competitiveness targets. Both leaders ruled out the prospect of euro zone members pooling their sovereign debt into so-called “euro bonds”.
“It’s often said that euro bonds are a last resort for the euro zone but I don’t think the euro zone is dependent on last resorts,” said Dr Merkel. “I don’t think euro bonds help us.”
German analysts played down the significance of the corporate tax proposals, saying they were a non-binding, bilateral proposal.
“I just see a co-ordination of policy between Germany and France – there won’t be any agreement at EU level on that any time soon,” said Dr Cornelius Adebahr, EU analyst at the German Council on Foreign Relations. “In the EU, the resistance to a common corporate tax base is still very high.”
Mr Noonan added Ireland had already signalled a willingness to constructively engage on the issue of the combined corporate tax base, and that remained the case.
“While I note that the French and German finance ministers will table a joint proposal at the EU level next September for a tax on financial transactions, this issue was considered at the last European Council meeting and it was not included in the final agreement,” he added.
