PARIS — Emmanuel Macron has won on symbols, and Angela Merkel on substance.
The French president obtained Tuesday from Germany something that can be called a plan for “eurozone reform,” luring the German chancellor just outside of her traditional comfort zone. And its the first time in the monetary unions 20-year history that an agreement on reform has been struck without the pressure and urgency of a major existential crisis.
Those are the two real political accomplishments of the so-called “Meseberg declaration” put forward by the French and German leaders at the castle outside Berlin. Look at the detail of the agreement, however, and at the two finance ministers “road map for the euro area,” and what happened can be best described as three fudges and a funeral.
The first fudge is on the “eurozone budget” that Macron had been so insistent on ever since he started pushing for reform soon after he was elected in May 2017. France and Germany did agree that there would be one, but remain mum on its future size and vague on the way it would be financed. That didnt come as a surprise.
Macron talked of “a few percentage points” of GDP, whereas Merkel, in a Frankfurter Allgemeine interview on June 3, floated “low-double digit billions” for a start. The final agreement doesnt mention anything on this.
Fuzzy mission, finances
And since the mission of the budget itself remains fuzzy — behind big hearty words like “convergence” and “investment” — its impossible to assess whether this will prove to be a significant break. In spite of what both governments would have us believe, theres a substantial difference between a €300 billion budget and a €30 billion one.
The way the budget would be financed is fuzzy as well: “Resources would come from both [sic] national contributions, allocation of tax revenues and European resources,” the road map says. That means all possible resources, save for joint borrowing — an anathema to German policymakers.
As for the type of new taxes the budget could tap, the French and Germans suggested reviving a dinosaur idea that has refused to die throughout the crisis: the so-called financial transaction tax. But the FTT has been met with diminishing support among EU and even eurozone members — less than a dozen governments still favor the idea.
The second fudge is on the role that the European Stability Mechanism (ESM) — the EUs bailout fund created on the fly in the heart of the euro crisis — would play in the future.
The idea that the ESM should manage a quick-response stability facility to help countries that face economic troubles that are not of their own doing has been discussed for months. For it to be effective, it should not require the heavy conditionality — in terms of economic policy — that bailed-out countries have been subjected to.
Yet the joint agreement is heavy on the conditions that countries would have to meet to benefit from the ESMs assistance. It seems to imply, for example, that a country with a budget deficit above the 3-percent-of-GDP limit wouldnt be eligible. The price paid for German agreement in this case would limit the potency of the new tool.
The agreement is equally vague on the articulation of the ESMs and the European Commissions role in monitoring economic developments. It leaves open the conflict between the two institutions by simply calling for them to “cooperate.”
The third and final fudge might prove the most damaging one for the reform push. As it is, the Franco-German deal is just the proposal that the two countries are making together to the other 17 members of the eurozone. Some will agree on the whole package, others will bicker on quite a few details.
Italy may balk at endorsing a Commission plan to reduce the banking sectors non-performing loans faster than at the current pace. And the Dutch government has been at the forefront of the hawkish wing of northern countries resisting the mutualization of risks, or the idea that all eurozone countries should share the burden of righting things when they go wrong.
This means that throughout the give-and-take bargaining with other eurozone members in coming weeks, Germany will always have the possibility of rowing back on some of the commitments in the Meseberg declaration, using the shield of the Dutch or other governments reluctance.
The story of eurozone reform is long on pledges and commitments that were soon forgotten after what one European official once called the “Pac-Man defense” of German governments — turning around to eat and swallow its previous pledges.
As it happens, one of those ideas agreed upon long ago in principle — a deposit insurance scheme for eurozone bank savers — has been all but buried in a solemn Meseberg funeral.
Paris and Berlin are only calling for “the work on a road map for the beginning of political negotiations” on the matter, which “could start” after next weeks European summit. Translation: It will soon be time to start talking about talking, maybe … German opposition to the idea seems to have won the day.
French symbolism, German style
The French side, however, has reasons to present the Meseberg agreement as significant.
First, it wouldnt have happened without Macron pushing for it. Second, even a token acceptance by Germany that a eurozone budget is a good idea in principle is progress.
German Chancellor Angela Merkel and French President Emmanuel Macron shake hands after a joint press conference on May 15, 2017 at the chancellery in Berlin | Tobias Schwartz/AFP via Getty Images
Finally, Macron did get the support of the SPD wing of the German coalition government in the form of the late-minute surprise proposal from Finance Minister Olaf Scholz for a “European unemployment stabilization fund” — a kind of insurance fund that would help countries hit by a sudden crisis to keep funding their welfare state. If implemented, this could go a long way in helping the eurozone weather future crises, as many economists have long advocated.
On substance, however, this is a German-style reform: heavy on conditions and rules, lighter on actual firepower given to eurozone institutions or governments to face future shocks.
Macron has won on symbols — including the common budget and the mere fact that the German side moved at last. The French president will hope that its good enough to open the way for improvements down the line.
But in the short term, itll be up to other eurozone members to back the Meseberg deal, or dismantle it.