Merkel flags debate on closer political ties


EUROPE WILL face a debate “sooner rather than later” over closer political union, German chancellor Angela Merkel said.

Her remark comes as European Union officials begin talks on an initiative to advance the EU to a “new level” of a banking, fiscal and political union, according to Germany’s Welt am Sonntag newspaper yesterday.

It reported that European Council president Hermann Van Rompuy will hold talks shortly with heads of the European Commission, the European Central Bank and Euro Group of euro zone finance ministers to prepare a discussion paper for the next EU summit at the end of June.

Leaders will then agree a timetable to agree to changes, according to informed sources, as well as a road map for implementation in the coming decade.

Early, ambitious versions of the plan involve integrating EU welfare systems to boost the internal market. ECB president Mario Draghi, meanwhile, wants a euro zone “banking union” with centralised oversight and a bank rescue fund financed by a banking levy.

Berlin would challenge this latter point, fearing it would be forced to subsidise southern European financial institutions. “I think the Germans would be the last to agree to a banking union,” said one person involved with the plan to Welt am Sonntag. “But I think they will agree in the end.”

Another challenge for the plan is to clarify what is meant by its proposed “fiscal union”. From Berlin’s perspective a fiscal union involves closer oversight of euro zone budgets – as regulated by the fiscal pact.

However, German officials know many others understand eurobonds – mutualised euro zone debt – to be a vital part of such a union. Berlin is likely to insist such a move can only come after institutional change as Germany’s constitutional court is likely to prevent any integration of social systems, or pooling of financial liability, until there is a clear boost of democratic legitimacy at EU level.

Where Berlin and Brussels are in agreement, insiders told the German newspaper, is that nothing can happen without further treaty change. With fiscal treaty ratification ongoing, that makes short-term progress on further integration unlikely.

Nevertheless, most officials involved in the talks – besides Brussels’ participants – seem prepared to push ahead with the reforms at euro zone level if necessary, creating a de facto two-speed Europe.

An unnamed central banker conceded in Welt am Sonntag this would be a significant development for the EU: “But this change in strategy has to come. Europe’s common currency is its formative element.”

Dr Merkel said any change agenda would have to tackle “encrusted” labour laws in Europe that had led to uncompetitive minimum wages in some EU states.

She also pushed for EU states to be brought automatically before the European Court of Justice if budget rules are breached.

“One cannot call for eurobonds and not be ready for the next integration step,” she said.