Merkel calls for EU powers to veto national budgets


German chancellor Angela Merkel has demanded stronger central powers for the European Commission to veto national budgets that breach EU rules, risking a clash with France at a summit of EU leaders today.

Addressing parliament in Berlin hours before the 22nd summit since the start of the euro zone's debt crisis, Dr Merkel also sought to slow the race to create a single European banking supervisor, saying quality was more important than speed.

French president François Hollande took a very different tack in an interview with six European newspapers, warning that budget discipline alone would not solve the euro zone's problems without doing more to revive growth. He called for greater haste in implementing a banking union.

"The topic of this summit is not the fiscal union but the banking union, so the only decision that will be taken is to set up a banking union by the end of the year and especially the banking supervision. The other topic is not on the agenda," he said at pre-summit meeting of socialist leaders.

Dr Merkel and Mr Hollande are expected to hold a one-on-one meeting before the summit proper begins, EU officials said, which may provide a chance to discuss their differences.

Dr Merkel skirted the issue of a possible credit line for Spain, which euro zone officials expect Madrid to request within weeks, but reiterated her desire to keep Greece in the currency area despite its chronic debt problems.

In Greece, workers walked off the job for the second time in three weeks, aiming to show EU leaders that a new wave of wage and pension cuts will only worsen their plight after five years of recession.

"We have made good progress on strengthening fiscal discipline with the fiscal pact but we are of the opinion, and I speak for the whole German government on this, that we could go a step further by giving Europe real rights of intervention in national budgets," Dr Merkel told the Bundestag lower house.

A proposal by German finance minister Wolfgang Schaeuble to create a super-empowered European currency commissioner was a possible way forward, she said, and more European control should be accompanied by a stronger European Parliament.

Such moves would require EU treaty changes which Mr Hollande is keen to avoid. He recalled that French and Dutch voters had rejected a previous attempt to tinker with EU institutions in referendums on a European constitutional treaty in 2005.

French budget minister Jerome Cahuzac told BFM TV that if the German budget czar idea required giving away more national power to Brussels, "the president has made his position clear in refusing to alter the (French) constitution . . . because Francois Hollande has not accepted a new transfer of sovereignty".

Dr Merkel also advocated the creation of a European fund to invest in specific projects in member states which she said could be fuelled by a financial transaction tax which 11 euro zone countries have said they will adopt.

Her call echoed a proposal by the heads of four EU institutions for the 17-member euro zone to have its own budget - known in EU jargon as a "fiscal capacity" - on top of the 27-nation union's common budget, which mostly funds agriculture and aid to poorer regions.

A note circulated by European Council president Herman Van Rompuy, who will chair the summit said the new pot of money would provide a way of insuring countries against economic shocks, and of supporting structural economic reforms when a member state made a contractual commitment.

"Every member state, regardless of their income levels, would over time contribute to the fiscal capacity and then benefit from its support," Mr Van Rompuy wrote. "Therefore, this would not lead to permanent transfers across countries."

Decisions on such reforms are not expected until a December summit, and Dr Merkel's demands appeared to be partly an attempt to shift the agenda from focusing on moves towards a banking union, which have drawn fierce criticism in Germany.

Taoiseach Enda Kenny is attending the summit but the prospect of an early debt relief deal for the State is looking increasingly unlikely given Dr Merkel’s stance.

A senior German official in Berlin said yesterday that the Irish banks’ problems occurred when they were supposed to be regulated by the Government. “It is simply not on that everyone tries to slip out of their responsibilities that they carried in the past.”

German officials said it was not their problem if Dublin had created expectations – “illusions” they termed them – around the speed at which the banking problem could be resolved and they noted that the June agreement contained no deadline.

EU economic and monetary affairs commissioner Olli Rehn said it was very important the summit maintain the momentum on banking
union "which is critical to break the vicious circle between sovereigns and banks".

Asked about the possibility of a currency commissioner with power over budgets being appointed, Mr Rehn said: "These proposals are in line with recent and ongoing reforms of economic governance and certainly will be a key element of negotiations towards a stronger economic union."

Ahead of the summit, Austrian chancellor Werner Faymann said he did not think a euro zone budget was required.

“With the financial transaction tax (FTT) not all countries are with us,” he said. "I would prefer if we focused on how we could integrate the FTT and other measures into the new common budget, against youth unemployment."

Czech prime minister Petr Necas said he did not think appointing a budget commissioner would be a good idea.

"We have enough instruments to improve fiscal discipline, we've got the six pack, we'll have the two pack, we have the fiscal compact, and I don't see any reason to increase the number of commissioners," he said.


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