The Eurozone budget – is a necessity if we want to preserve the Euro

France and Germany agreed last week on the parameters for the proposal for a special “Eurozone budget”. The objective: to strengthen convergence within Euroland by promoting investments and pre-empt crises, something intended also to improve the Euro’s stability. After months of standstill in the talks on reforming the EU and the EMU, the two largest member states now hope to create new momentum both in the public debate and in discussions between the member states. And the timing is anything but a coincidence. Next year will see elections to the European Parliament, and the governments still owe the citizens of Europe the promised answers to the pressing questions on the future of the EU.

Anyone expecting to see a fully developed concept, however, is likely to be disappointed. The two-page position paper primarily contains clichés and general declarations of intent, but does not mention any real concrete measures or the financial scope. The braking activity in the Franco-German alliance is probably mostly in Berlin. While the federal government is convinced of the need to press ahead with Eurozone integration, unlike Paris the focus is mainly on giving Brussels stronger control and sanction instruments. French President Macron, however, is pushing more for “promote and demand”, which in the final analysis involves a financial transfer mechanism for the Euro. Berlin fears the (domestic) political explosiveness of more extensive financial commitments and therefore does not yet want to advocate an actual scale for a Eurozone budget.

Since Berlin and Paris have already had a tough time finding the smallest common denominator, it is hardly surprising that opinions at the overarching European level differ greatly. While Italy believes application of the rules valid today is already an excessive thorn in its side, above all the Baltic states and the Netherlands are opposing even greater financial risks / commitments for their countries. In the age of Brexit, there could hardly be greater dissent over the decisive direction Euroland should move in.

However, in economic terms the political dispute is extremely dangerous. If the Eurozone does not succeed in stopping the growing disintegration, the future viability of the monetary union will sooner or later once again be subjected to a serious stress test. To put a stop to the current downwards spiral, the Eurozone will have to move towards a greater spread of the burden and more transfers between countries. But that also requires a greater sense of responsibility by the governments in question, something that is at present not the case. The current conflict between Rome and Brussels is in this regard actually no more than a passing episode that needs to be viewed simply in terms of Italy’s domestic political scene.

 

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