Mumbo jumbo? Cracks widen between Germany and France ahead of Macron’s visit

Berlin keeps blocking Emmanuel Macron’s ambitious euro-zone reform proposals. The latest ruse is a “jumbo council” of European finance and economic ministers, proposed by Angela Merkel.
“Forget it,” Monsieur le Président.

Emmanuel Macron is not giving up on his dream to overhaul the European Union. In his first address in the European Parliament on Tuesday, the French president emphasized that “tangible results” must be achieved quickly on euro-zone reform.

On the very same day, however, lawmakers in Chancellor Angela Merkel’s conservative bloc in Berlin released a joint paper that would derail Mr. Macron’s proposals to further monetary union, including plans to create a common budget for the whole 19-country bloc.

The unfortunate timing is anything but a coincidence. Mr. Macron is due to visit Ms. Merkel in Berlin on Thursday, and plans for an overhaul of the euro zone will be high on his agenda. The two leaders pledged last month to overcome differences to formulate a road map for euro-zone reform so it could be approved by their European peers in June.

But that was then. This week, German conservatives, unwilling to make German taxpayers liable for other countries’ debts, curtailed with the stroke of a pen the chancellor’s capacity for reform.

Ms. Merkel called for a new “jumbo council” of economics and finance ministers.

The lawmakers’ resolution lays down strict conditions that restrict proposals to transform the euro zone's bailout fund, the ESM. Mr. Macron's idea had been to turn this into a European Monetary Fund that would help member countries preempt threats of financial instability. It is a divisive proposal because some European countries are reluctant to provide such aid.

The latest paper from Germany demands that Berlin lawmakers retain the right to decide whether or not to grant assistance to other euro-zone member states. It also includes a potentially deal-breaking insistence on creating an EMF through a new EU treaty, thus involving national parliaments in the fund's creation. Gaining the approval of all of the euro zone’s 19 parliaments would likely be a tortuous process with a high potential for failure.

Ms. Merkel's anointed successor, Annegret Kramp-Karrenbauer, also dismissed Mr. Macron's plan for a separate investment budget for the single currency area, saying it was not “a top priority” while the bloc is still grappling with plugging the hole that Brexit will leave in the wider EU budget. “I don’t think that would make sense,” she said.

But, wary of answering “Nein” to every suggestion from Paris, Ms. Merkel came up with a new idea to further euro-zone integration. She called for a new “jumbo council” of economics and finance ministers to replace the Eurogroup, which currently includes only finance ministers from the 19 euro countries. The “jumbo council” would meet several times a year.

The chancellor’s gambit brings a new idea into the debate: rather than fund what some see as money pits, she wants to fund economic convergence between EU members and the competitiveness of the European economy by involving economics ministers formally involved in the architecture of the euro zone.

The proposal is in any case not coordinated with the SPD and is not supported by us. Carsten Schneider, SPD lawmaker in the Bundestag

Whether Ms. Merkel's coalition partners, the Social Democrats, will eventually support this conservative proposal remains to be seen. "The proposal is in any case not coordinated with the SPD and is not supported by us," Carsten Schneider, a senior member of the SPD’s parliamentary group in the Bundestag, told Handelsblatt. He added that he saw no need to add further committees at ministerial level to EU structures.

There may be another reason why the SPD is not enthusiastic about the “jumbo council.” The new finance minister, Olaf Scholz, is the first Social Democrat in the role for over a decade. But the economics minister, Peter Altmaier, is a Christian Democrat and one of Ms. Merkel’s closest advisors. And the Social Democrats are not keen on sharing their seat in the influential Eurogroup with Ms. Merkel’s CDU.

In Paris, calls for a “jumbo council” have barely caused a ripple among the media. This could be because the brief of French Finance Minister Bruno Le Maire also extends to the economy, so French involvement to the new council would not be significantly different.

But seven months after the federal election, Berlin’s hemming and hawing on EU reform is becoming difficult to ignore, and many in Paris believe that the Franco-German partnership should start delivering if it is serious about making the EU fit to tackle the many challenges it faces.

Ms. Merkel has not forgotten this and is as ever walking a very fine line between conservative forces at home and more liberal calls abroad. Germany and France will agree on the European reforms to implement by the June deadline, she promised this week. She added that the banking union was a priority in her eyes and that Berlin was ready to move forward. “So I am looking forward the Thursday meeting, because it will be a step closer to the development of a common position,” she said.

Handelsblatt's politics correspondents in Berlin Martin Greive, Jan Hildebrand and Thomas Sigmund collaborated on this article with Ruth Berschens, head of Handelsblatt's Brussels bureau chief, and Jean-Michel Hauteville, an editor with Handelsblatt Global in Berlin. To reach the authors: [email protected].