PARIS: A Franco-German deal to strengthen the euro zone has ended months of bickering between Paris and Berlin and raised the onus on French President Francois Hollande to embark on potentially explosive social and economic reforms.
German Chancellor Angela Merkel, Europe's most powerful politician, made a string of symbolic concessions to France in joint proposals for closer economic policy coordination outlined last week, in return for a clear commitment to reform.
She did so because bolstering the stagnant French economy has become a top German priority. "If France weakens further, it endangers the foundations of the euro," a senior German official said.
Departing from past positions, Merkel accepted a full-time president of the Eurogroup of euro area finance ministers, more frequent summits of euro zone leaders, greater coordination of social and tax policy, a slowdown in the pace of deficit reduction and a commitment to reciprocity in EU external trade.
Furthermore, she cleared the way for the next stage of a European banking union by accepting a "resolution board" that will be empowered to take decisions on restructuring or winding up failed banks, financed by contributions from the banking sector and backstopped by the euro zone's rescue fund.
And she accepted all this could happen without treaty change and without transferring new powers to the executive European Commission.
"The Germans were so worried by the weakness of France that they have revised their strategy and decided they have to help France," said Jean-Dominique Giuliani, president of the pro-European Robert Schuman Foundation in Paris.
"On paper, Merkel made a lot of concessions to France, but by doing so she has given Hollande the face-saving political cover he needs to move ahead with reforms that are extremely sensitive, especially for the left," he said.
The Socialist president promised to use the extra two-year leeway for reducing France's budget deficit granted by EU authorities to reform the pension system, welfare benefits and tax breaks in negotiation with unions and employers.
Whether a Franco-German deal on Europe will make it easier for Hollande to overcome resistance to entitlement reforms from organised labour, the left and the street remains to be seen.
SKIRTING BRITAIN
By ruling out new powers for Brussels or an early drive for European fiscal union that would require a new EU treaty, the conservative Merkel may also have changed tack for domestic reasons ahead of September's German general election.
Berlin officials now acknowledge there is almost as little enthusiasm in Germany as in France for ceding sovereignty over national budgets to the Commission, and no appetite for treaty change among euro zone partners.
Moving forward pragmatically through inter-governmental cooperation is hence more realistic and offers a way to skirt a potential British veto on any treaty amendment as London seeks to force a return of EU powers to national capitals.
"There is real convergence between France and Germany on the need to give structure to this governance - which is relatively new," said a diplomatic source in Hollande's office.
Berlin long suspected France of raising the subject only to try and exert influence on the European Central Bank, while Paris suspected Berlin of pushing a federalist agenda, he said.
LOSS OF COMPETITIVENESS
Merkel's gesture to Hollande was preceded by a spate of German visitors - including Foreign Minister Guido Westerwelle, Economics Minister Philipp Roesler and Bundesbank President Jens Weidmann - who delivered the same message: Germany needs a strong France and does not want to lead Europe on its own.
Alarm at France's accelerating loss of economic competitiveness, expressed bluntly in private, finds public expression in statements by German policymakers that they are confident France will make the necessary reforms.
indiatimes.com
German Chancellor Angela Merkel, Europe's most powerful politician, made a string of symbolic concessions to France in joint proposals for closer economic policy coordination outlined last week, in return for a clear commitment to reform.
She did so because bolstering the stagnant French economy has become a top German priority. "If France weakens further, it endangers the foundations of the euro," a senior German official said.
Departing from past positions, Merkel accepted a full-time president of the Eurogroup of euro area finance ministers, more frequent summits of euro zone leaders, greater coordination of social and tax policy, a slowdown in the pace of deficit reduction and a commitment to reciprocity in EU external trade.
Furthermore, she cleared the way for the next stage of a European banking union by accepting a "resolution board" that will be empowered to take decisions on restructuring or winding up failed banks, financed by contributions from the banking sector and backstopped by the euro zone's rescue fund.
And she accepted all this could happen without treaty change and without transferring new powers to the executive European Commission.
"The Germans were so worried by the weakness of France that they have revised their strategy and decided they have to help France," said Jean-Dominique Giuliani, president of the pro-European Robert Schuman Foundation in Paris.
"On paper, Merkel made a lot of concessions to France, but by doing so she has given Hollande the face-saving political cover he needs to move ahead with reforms that are extremely sensitive, especially for the left," he said.
The Socialist president promised to use the extra two-year leeway for reducing France's budget deficit granted by EU authorities to reform the pension system, welfare benefits and tax breaks in negotiation with unions and employers.
Whether a Franco-German deal on Europe will make it easier for Hollande to overcome resistance to entitlement reforms from organised labour, the left and the street remains to be seen.
SKIRTING BRITAIN
By ruling out new powers for Brussels or an early drive for European fiscal union that would require a new EU treaty, the conservative Merkel may also have changed tack for domestic reasons ahead of September's German general election.
Berlin officials now acknowledge there is almost as little enthusiasm in Germany as in France for ceding sovereignty over national budgets to the Commission, and no appetite for treaty change among euro zone partners.
Moving forward pragmatically through inter-governmental cooperation is hence more realistic and offers a way to skirt a potential British veto on any treaty amendment as London seeks to force a return of EU powers to national capitals.
"There is real convergence between France and Germany on the need to give structure to this governance - which is relatively new," said a diplomatic source in Hollande's office.
Berlin long suspected France of raising the subject only to try and exert influence on the European Central Bank, while Paris suspected Berlin of pushing a federalist agenda, he said.
LOSS OF COMPETITIVENESS
Merkel's gesture to Hollande was preceded by a spate of German visitors - including Foreign Minister Guido Westerwelle, Economics Minister Philipp Roesler and Bundesbank President Jens Weidmann - who delivered the same message: Germany needs a strong France and does not want to lead Europe on its own.
Alarm at France's accelerating loss of economic competitiveness, expressed bluntly in private, finds public expression in statements by German policymakers that they are confident France will make the necessary reforms.
indiatimes.com
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