EU states frustrated by Paris, Berlin summit deal

BRUSSELS Fri Feb 4, 2011 8:48pm GMT

1 of 4. Britain's Prime Minister David Cameron (R) talks with European Commission President Jose Manuel Barroso (L) during an European Union leaders summit in Brussels February 4, 2011.

Credit: Reuters/Thierry Roge

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BRUSSELS (Reuters) - Germany and France tried to win backing for a pact to strengthen the euro zone economy on Friday, but many other EU states were angered by what they saw as a 'fait accompli' and the measures contained in it.

Paris and Berlin -- the driving forces behind euro zone policy -- set out a wish-list of measures they want euro zone and the wider EU to adopt to improve competitiveness and help tackle the year-long debt crisis. The proposals included:

* limits on debt levels written into national laws

* a higher retirement age, based on demography

* the abolition of wages indexed to inflation

* unified bank crisis-resolution mechanisms, and

* a minimum corporate tax rate

But there was almost immediate pushback against the proposals, with large and small EU states, from Belgium and Austria to Ireland, Spain, Portugal, Poland and Luxembourg expressing aggravation at France and Germany's methods, as well as the substance of the six-point proposal.

"The discussion became really quite heated," said an EU diplomat on the sidelines of the talks. "One EU leader asked Sarkozy and Merkel if they really thought it was right to treat everyone else in this way. He was insulted."

Paris and Berlin said they had worked together to come up with a clear package quickly. French President Nicolas Sarkozy said the two had no intention of enforcing a straightjacket.

"The idea we have with Angela Merkel is not to impose the same thing to everybody ... but maybe we can agree on how to calculate things," he told reporters after the summit.

"Maybe we can agree on a common framework, which does not mean pure equality," he said of the proposal for a corporate taxation minimum. "It's not a rigid process."

Merkel said the intention was to show unity and determination on tackling the causes of the debt crisis.

"We want to send out a clear message, that as the European Union, we intend to grow together. What we want to establish is a pact for competitiveness," she said.

Opponents, which included a good portion of the 17 countries in the euro zone, said the proposals were hard to accept.

"I don't think it's possible for the European Union to regulate the pension age because there are large differences in the individual countries," Austrian Chancellor Werner Faymann said. "I don't think it's right to interfere in wage negotiations, like some have demanded."

Ireland opposes a minimum corporate tax rate, Belgium, Spain and Portugal oppose the abolition of index-linked wage increases, and the retirement age measure is widely disliked in countries with strong unions and powerful labour lobbies.

The issue is likely to be taken up again at an extra summit after March 9, Germany said, with the aim still to try to forge an agreement by the end of next month.

PUSHBACK

Most of the proposals by Berlin and Paris have already been set out by the European Commission in January in its Annual Growth Survey, part of the new, tighter budget process.

European Commission President Jose Manuel Barroso signalled on Wednesday there was no need for separate agreements between governments on more economic cooperation since the same could be done on the basis of the Commission proposal.

But France and Germany hope a deal between governments will ensure an agreement is reached more quickly -- an important factor given the pressing nature of the debt crisis.

The two biggest euro zone economies want the pact to be part of a "comprehensive package" that leaders agree in March, when they hope to sign off on a series of measures that might help halt the euro zone's year-long sovereign debt crisis.

The package is to include changes to the European Financial Stability Facility, the 440 billion euro bailout fund agreed last May, to increase its effective lending capacity and give it more flexibility on how to use its money.

Conclusions of the summit said euro zone ministers would consider proposals for strengthening the EFSF "to ensure the necessary effectiveness to provide adequate support." Those discussions are also expected to be finalized next month.

Strengthening the EFSF has been the focus of discussion for months, since it became clear its effective lending capacity was only about 250 billion euros (210 billion pounds), not 440 billion, due to guarantees built into the fund to maintain its triple-A credit rating.

Given its lending limitations, there are concerns that if Portugal and Spain were both to end up needing a bailout, the EFSF would not have sufficient funds.

European Central Bank President Jean-Claude Trichet, who held talks with EU leaders over lunch, is among those calling for the EFSF to be enlarged and made more flexible, so that it is not just a bailout lender of last resort.

The EFSF is the chief weapon in the EU's arsenal, but deep disagreement remains over how it should be strengthened, with Germany determined to secure stricter budgetary commitments from other euro zone members and reforms boosting competitiveness in exchange for agreeing amendments to the fund.

(Additional reporting by Jan Strupczewski, Ilona Wissenbach, Bate Felix, John O'Donnell, Francesco Guarascio and Luke Baker in Brussels, editing by Mike Peacock, Ron Askew)

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Comments (4)
seymourfroggs wrote:
The views of the smaller States emphasises the Moral Hazard (”What’s the problem? We’re still going. Why should we show discipline?”).

The Sud-Nord split:

Despite some costs to Northern banks, (and IMO, they would not be major) the PIGS should accept a new Euro (say 80% of par).

Clearly, whatever you like to call it (and I call it corruption) States that are prepared repeatedly to fudge the books must be separated off from the rest. Spain & Portugal would benefit, and good luck.

Feb 05, 2011 1:28pm GMT  --  Report as abuse
pavlaki wrote:
He who pays the piper calls the tune.

Feb 05, 2011 5:38pm GMT  --  Report as abuse
Marcopolo29842 wrote:
Whatever happened to the move to liberalise the regulations on service throughout the EU? I thought this was supposed to be one of the biggest obstacle to growth and saves a lot of other ‘nanny state’ rules.

Feb 05, 2011 5:42pm GMT  --  Report as abuse
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