Merkel, Macron and key eurozone reforms

Paris – Shocked by Brexit, the European Union has made reform a top priority, spurred on by the energetic French President Emmanuel Macron who wants big changes especially for the euro, the bloc’s single currency.

But so far the effort has failed to get off the ground, mainly due to six months with no government in Germany after a narrow victory by Angela Merkel in the German elections last September.

Making matters worse, earlier this month, eight northern EU countries — the Netherlands, Estonia, Lithuania, Latvia, Finland, Ireland, Denmark and Sweden — jointly warned against French-inspired reforms they deemed “too ambitious”.

Here is a list of key reforms being mulled in European capitals as Merkel visited France on Friday for talks with Macron.

 

– Eurozone finance minister –

 

Macron proposed a finance minister for the 19-country eurozone with centralised powers over its economy, but the French leader remained vague about how the new position would work.

Jean-Claude Juncker’s European Commission then proposed to create a finance minister for the whole 28-nation EU by merging the vice-presidency of the commission and the presidency of the Eurogroup — the informal group that brings together the 19 finance ministers of the eurozone.

But wary of handing more power to Brussels, the Eurogroup ministers quickly rejected the idea last December by choosing to elect one of their own, Portugal’s Mario Centeno, for a two-and-a-half-year term.

 

– Eurozone budget –

 

National governments have for months been haggling over creating some sort of budget capacity for the single currency bloc which could be used in case of crises or economic shocks.

Germany is open to something modest and controlled by the member states, not the EU’s institutions, that could also be used to help implement tough reforms.

 

Others are bitterly opposed on principle.

The Commission, wary of a two-speed union split between the eurozone and the remaining countries, believes the budget should not be separate from that of the EU in general but is open to the idea.

The issue will be discussed on Friday by the EU heads of state at a summit in Brussels.

“We will never fully agree,” a senior European official said on condition of anonymity. “But at some point something will make it to the table, and we’ll improve it over time.”

 

– Eurozone parliament  –

 

It was one of Macron’s most ambitious ideas: A parliament specific to the euro area, responsible for controlling its decisions. But it already seems buried.

Slideshow showing key economic indicators for the Eurozone

The French president watered down his already vague idea and the Germans and European Commission Jean-Claude Juncker never took him up on it.

Macron’s even less ambitious idea to create transnational MEPs by using seats currently held by Britain has also run aground.

 

– Eurozone banking union –

 

The EU considers this issue as one of the easiest to solve and aims for “concrete progress” this June.

The central challenge is to set up a European-wide deposit insurance scheme, that has until now been bitterly opposed by Berlin in the belief that Germany would be on the hook to save fragile banks in countries such as Italy.

But the formation of a new government in Germany should bring progress, as advancing on these issues is a condition set by the social democrats in order to join Merkel’s coalition.

 

– European Monetary Fund –

 

Eurozone finance ministers have accepted the idea of upgrading the responsibilities of the European Stability Mechanism (ESM), which oversees loans to troubled member states, such as Greece, into some sort of European Monetary Fund.

But beyond the concept, Europeans struggle to agree on the exact missions of this future body.

Everyone agrees that it should assume the role of “lender of last resort” (or “backstop”) for banks in distress if the backup mechanisms already in place prove ineffective.

But some, such as Germany, would like the fund to rival the Commission in its power to oversee national economies. This is opposed by the EU executive, which is loath hand power to a body run by the national governments.