Merkel seeks EU say on national budgets

 

GERMAN CHANCELLOR Angela Merkel has said the EU should be given powers to strike out national budgets that do not meet tougher euro zone debt rules.

The German leader dismissed pooling euro zone debt as a solution to the euro zone crisis, ahead of today’s European Commission proposals, saying there was “no way around” treaty change to allow EU oversight of national budgets.

The French and German leaders said yesterday they would soon present joint proposals for treaty change, prompting European commissioner for economic and financial affairs Olli Rehn to question if this was “really necessary” as existing oversight rules had yet to be exhausted.

“Whoever doesn’t live to the agreed rules will have to reckon with an automatic right of intervention which would mean the national budget is invalid,” Dr Merkel told German employers in Berlin.

“For me, treaty changes are not something one should look on as a particularly German obsession – because we love treaties or because we’re so precise – rather they are a political answer to a politically-induced crisis of trust.” Chancellor Merkel brushed off demands for the ECB to go beyond its current mandate and become a lender of last resort for ailing euro zone members.

“I don’t think that will work, at least not for any length of time,” she said, saying markets would soon realise that “someone has to recapitalise the bonds on the ECB’s books”.

Earlier in the day, Mr Rehn told sceptical German employers that his eurobond proposals were “worthy of closer study”.

“It’s clear that any type of eurobonds would have to go in parallel, hand in hand, with a substantially reinforced fiscal surveillance and policy co-ordination,” he said, proposing annual commission inspection of national budgets. “Stability bonds would require that any step in the further sharing of risk would have to be balanced by provisions that ensure sustainable public finances and avoid free-loading on the consolidation efforts of other member states.”

French president Nicolas Sarkozy said yesterday that treaty change was necessary to prevent euro zone countries from pursuing divergent economic policies.

“No advanced country is sheltered from the consequences of excessive debt built up over many years,” he said.

Earlier, his prime minister François Fillon said Berlin and Paris backed an “intergovernmental union” to deal with the crisis.

“Today, only a very strong intergovernmental union in the heart of Europe will allow us to resist the shocks which are shaking the links we have patiently constructed since the second World War,” said Mr Fillon.

“This is a starting point to lead the entire continent towards a new frontier, a powerful euro zone where economies progressively converge.”

Although France is wary of agreeing to intrusive oversight of its budgetary process, Mr Fillon echoed Mr Sarkozy’s call to amend the treaties, saying “deep changes” would ultimately be required.

Mr Sarkozy, who has been pressing Berlin for deeper involvement by the European Central Bank to bring the crisis under control, welcomed the bank’s continuing purchase of weaker countries’ bonds on the secondary market.

While Berlin and Paris agree on treaty change for closer fiscal union, they are on opposite sides of the debate over the ECB’s future role. Bundesbank president Jens Weidmann rejected allowing the ECB become a lender of last resort. “The temptation in difficult times to throw principles overboard or shift the legal basis is great but this would gamble away trust,” Mr Weidmann said at the BDA employer conference in Berlin.

“By committing to a role of lender of last resort for indebted members, the central bank would overstep its mandate and call into question its independence.”

Germany had an “elementary interest” in stabilising the euro zone, but pooling risk would not convince markets of the euro zone’s long-term viability, he said.

He was complimentary of Ireland’s progress in its reforms. “Hope is growing that soon [Ireland] will be able to stand on its own feet in financial terms.”