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Europe – Franco-German fiscal pact faces opposition

07 February 2011

After France and Germany presented plans for a fiscal union in Brussels, some European Union (EU) partners reportedly indicated reluctance to accept the proposals. But according to a clause in the Lisbon Treaty, not all countries would have to sign up for the union, say sources. 

Germany and France's leaders have put together a working document, called the Competitiveness Pact, to get all EU countries to agree to harmonised taxation and labour policies, including upping countries' retirement age to 67.

The leaders presented the plan to their counterparts at a summit in Brussels, which was originally intended to focus on energy and innovation policy.

European Commission sources, who wish to remain anonymous, said that early reactions from member states to the plans were less than favourable.

"There will be a massive pushback from most countries and the expectation of this succeeding is minimal," said the Commission sources.

Other measures included in the plan are salary indexation systems, debt limits or brakes written into countries' constitutions and mutual recognition of educational qualifications.

"What should be the goal of the economic cooperation? The goal should be to secure the well-being of citizens in our countries", German Chancellor Angela Merkel said at a press conference.

"We want to make the different European economies converge together [and] we are in agreement over a structural plan to bring an answer to the challenges Europe is facing," French President Nicolas Sarkozy insisted.

Speaking to journalists, a French official explained that, for the first time, Paris and Berlin were proposing to use Article 136 of the Lisbon Treaty, which allows Eurozone countries "to strengthen the coordination and surveillance of their budgetary discipline" without the approval of other EU member states.

Exactly like Schengen agreement

A Commission source compared the pact to the Schengen agreement, which EU countries have progressively adopted since its inception.

But the French official stressed that the Franco-German proposal was only the start of a discussion with other Eurozone countries.

"Everything is still to be negotiated," he said, admitting that France had "divergences of views" with the European Commission, Germany and other member states on some points, but that these "should not be overstated".

"We want a stronger integration of European economic policy to achieve greater competitiveness. Together we will present our plan to the other heads of state and government during lunch."

Sarkozy said a meeting of Eurozone heads of state would be convened before a regular EU summit at the end of March that is expected to see final decisions on reforming the single currency.

Positions

Belgian MEP Guy Verhofstadt, President of the liberal ALDE party (Alliance of Liberals and Democrats for Europe) group in the European Parliament, said "we welcome the moves to strengthen economic governance although we are in danger of constantly reinventing the wheel rather than delivering concrete results."

"However, we strongly object to the method being suggested. A purely intergovernmental system, outside of the Treaty structures, will not have the desired effect. Discipline will only be effectively ensured through the application of the Community method and through the empowerment of the Commission," Verhofstadt said.

"Member states must accept that real automaticity in the application of the Stability Pact be introduced. Parliament will insist on this when it adopts its position on the package on economic governance," he added.

Commenting on the statement by Euro-area member states, Verhofstadt said "though it is more than time to start addressing the lack of economic policy coordination within the euro zone, the sidelining of the European Commission is unacceptable.  The Commission has the competence and expertise but crucially it articulates the Union's interest. Neither the European Council nor its President - can do this."

The Party of European Socialists (PES) denounced the "hard-line measures" in the competitiveness pact, describing the proposals as "an 'austerity juggernaut' of higher retirement ages, ripping up wage agreements, and an absence of funding for vital R&D programmes".

"How are ordinary people to be expected to make yet more sacrifices on retirement, on wages and on social benefits, when they are yet to see any tough measures taken to control the financial sector, or even have that sector pay a fair share?," said Poul Nyrup Rasmussen, President of the PES.

The socialists also criticised the methods of Sarkozy and Merkel, who outlined their proposals at a press conference prior to discussions with other European leaders, without involving the European Commission.

To read a draft of the Competitiveness Pact in German language please click here

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