Merkel Pushes for New Eurozone Government

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Merkel Pushes for New Eurozone Government

With elections out the way, German Chancellor Angela Merkel can now return to fixing the euro.

German Chancellor Angela Merkel has begun pushing for radical changes to the way the eurozone is governed, Der Spiegel reported earlier this week. “Officials at the chancellery are forging plans for Europe that are practically visionary for someone like Merkel,” it writes. “If she prevails, they will fundamentally change the European Union. The goal is to achieve extensive, communal control of national budgets, of public borrowing in the 28 EU capitals and of national plans to boost competitiveness and implement social reforms.”

“It isn’t a new goal,” Spiegel writes, “but what is new is the thumbscrews Brussels will be allowed to apply if Merkel has her way, including sooner and sharper controls and veto rights, as well as contractually binding agreements and requirements.”

“In short,” the article continues, “this would amount to a true reconstruction of the eurozone and a major step in the direction of an ‘economic government’ of the sort the spd too would like to see put in place.”

Spiegel reports that Chancellor Merkel held a private “back-door” meeting with European Council President Herman Van Rompuy on October 17, to sound him out on Germany’s plans. It also states that the German Finance Ministry is already working on documents to put in place the changes Merkel wants.

A draft of the European Council’s conclusion ahead of the council meeting to be held October 24-25 obtained by the think tank Open Europe references “contractual arrangements and of associated solidarity mechanisms”—possibly an ungainly reference to the plans reported by Spiegel.

Under these plans, the European Commission would agree on a contract with each euro country, setting conditions on how that nation spent its money. If it broke the contract, or refused to sign one, there would be penalties.

As a positive incentive, the eurozone would get its own budget, probably in the tens of billions of euros. Eurozone nations that behaved themselves would have access to this money.

The eurozone would also get a kind of finance minister—a permanent head of the Euro Group. Currently one of the eurozone’s finance ministers chairs a committee of the other finance ministers. Making this job full time and independent would make it significantly more powerful.

Merkel has a reasonable level of support for the plan within Germany. The Social Democrats, the party she plans on forming a coalition with, has similar goals for Europe. They are, however, wary of the treaty changes that Merkel’s plan would entail. For example, they don’t want Merkel to hand back powers to Britain in exchange for Britain’s support for the treaty.

Treaty change is the main objection to the plan overall. It is time consuming. Nations like Ireland are required by law to hold a referendum on any treaty changes, and they would probably vote down Merkel’s plan. Other European leaders don’t like the idea for similar reasons. Across the Continent, mainstream parties are losing votes to Euroskeptic groups. They don’t want to give up more power to Brussels, giving their new opponents more ammunition.

But Spiegel writes, “It doesn’t seem to bother [Merkel] that she will be in a clear minority when she embarks on her reform plans. She is familiar with this position from the first days of the euro debt crisis, when she wanted to include the International Monetary Fund as a key authority in distributing aid packages, and almost all other euro countries were against the idea. At the time, she said privately: ‘I’m pretty much alone here. But I don’t care. I’m right.’”

Germany is already used to getting its way in Europe, even when many other countries object. As the Spiegel article notes “In the midst of the European crisis, Germany has become the undisputed dominant power in Europe.”

But Merkel is not in a huge hurry to put her plan in place. The European Parliament will hold elections in May 2014, and then European Commission President José Manuel Barroso steps down at the end of 2014. Once these changes have taken place, Merkel is expected to push for her reform in earnest.

It may not happen like that. The changes in the eurozone so far have been driven by crises, not by the plans of its leaders. Many of Europe’s problems have been papered over, to be dealt with once Germany’s new government is in place.

But these plans show Germany’s ambitions. As future crises force more changes in the eurozone, Germany won’t be pushing for the break-up of single currency. Instead it will want tighter integration.

Many European nations won’t want this, and they may have to be left behind.

A single currency cannot work without a single financial government. It is now almost universally accepted that the EU’s leaders set up the euro knowing that it would force the eurozone to come together under this single economic government.

That is what we’re seeing right now. The current situation is unsustainable: The eurozone must either unite or fall apart. And the eurozone will unite—there’s too much political will behind the common currency.

For more information on the planning behind the euro, see our article “Did the Holy Roman Empire Plan the Greek Crisis?