2. DIFFICULT CHOICES FOR THE FRANCO-GERMAN AXIS

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*Two camps middle in the EU

Germany is clearly an important veto player for anything that will happen in the eurozone. It is difficult to imagine any important decision being taken against the explicit wishes of the government in Berlin. However, the EU Coalition Explorer data shows that winning Germany over might not necessarily trigger a reform process.

Both the Netherlands and Finland are focal points of a camp sceptical of loosening austerity measures and of introducing more centralised fiscal policies. Interestingly, both countries are considered “essential partners” in fiscal policymaking to great extent, outranking Italy and Spain.

The Netherlands (which has 13 votes in the European Council and a six percent share of the eurozone’s GDP) is mentioned on average by 41 percent of the professionals interviewed in each member state, while France (which has 29 votes in the council and a 21 percent share of the eurozone’s GDP) is mentioned just slightly more, with an average of 49 percent, and Italy (which has 29 votes in the council and a 16 percent share of the eurozone’s GDP), has an average of only 20 percent.

The details reveal strong links between the Baltic states, Finland, Germany and the Netherlands, which see each other disproportionately as important allies.

 In the southern part of the Eurozone (Portugal, Spain, Italy, Greece), it is notable that France is viewed as a much more important partner than in the rest of the currency union. This configuration suggests any reform package agreed by France and Germany needs to cater to both camps; it cannot be a governance package lifted from a French script, nor merely a stricter enforcement of fiscal rules, as in the German approach.

Paths to economic growth 

Linked to eurozone reform is the question of making the single market work better. On the one hand, completing the single market is seen as a remedy for the problems the euro crisis created. After the removal of any obstacles to the capacity of markets to adjust swiftly, falling wages triggered by austerity would lead to increased aggregate demand, hence a return to economic growth. Moreover, a growth impulse from market reforms would be highly welcome in a time of budget cuts. Some countries wary of enhanced fiscal power at the European level see the completion of the single market as a good substitute to costly eurozone budgets.

A logical solution could be a “grand bargain”: a package that on the one hand moves the single market further to completion — hence satisfying the more economically liberal-minded member states — and, on the other hand, creates a true fiscal capacity and a central eurozone level, satisfying the camp that wants to enhance policy space at the European level.

Single market completion also has broader importance: it is the core economic project of the EU. Furthermore, many argue that moving forward with market integration for just a subgroup of the EU might damage it: it could be confusing for businesses if the same rules do not apply throughout the EU. The results from the Coalition Explorer underline this problem: 70 percent of all interviewed would prefer to complete the single market within the entire EU. Only 15 percent see a legally bound subgroup as the better option.

Any grand bargain for the eurozone, including significant market liberalisation, would therefore need the consent of all EU member states – not just the 19 eurozone members. France and Germany will have to do a lot of convincing if such a package is to become a reality.

* The publication is not an editorial. It reflects solely the point of view and argumentation of the author. The publication is presented in the presentation. Start in the previous issue. The original is available at :  http://ecfr.eu

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3 Comments

  1. The Estonia meeting comes four days after a German election that has raised the prospect of months of tough coalition talks for Merkel, the most influential EU leader, and two days after Macron’s rallying cry for deeper integration of national economies.

  2. Many admire the youthful new French president’s energy and oratory after years in which Paris, long a driving force of the European Union, has appeared bereft of self-confidence.

  3. The EU insists that cannot happen until “significant progress” is made on divorce terms — notably how much Britain owes. Her speech in Florence has, so far, averted a stalemate, EU negotiators say, opening the way for some positive movement.

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