Merkel and France Clash on EU Budget Controls

German Chancellor Angela Merkel demanded stronger central powers for the European Union’s executive to veto national budgets that breach EU rules, risking a clash with close ally France at a summit of the bloc’s leaders on Thursday.

Addressing parliament in Berlin hours before the 22nd summit since the start of the euro zone’s debt crisis, Merkel also sought to slow the race to create a single European banking supervisor, saying quality was more important than speed.

French President Francois Hollande took a very different tack in an interview with six European newspapers, warning that budget discipline alone would not solve the euro zone’s problems without doing more to revive growth, and calling for greater haste in implementing a banking union.

Merkel skirted the issue of a possible credit line for Spain, which euro zone officials expect Madrid to request within weeks, but reiterated her desire to keep Greece in the currency area despite its chronic debt problems.

In Greece, workers walked off the job for the second time in three weeks, aiming to show EU leaders that a new wave of wage and pension cuts will only worsen their plight after five years of recession.

“We have made good progress on strengthening fiscal discipline with the fiscal pact but we are of the opinion, and I speak for the whole German government on this, that we could go a step further by giving Europe real rights of intervention in national budgets,” Merkel told the Bundestag lower house.

A proposal by German Finance Minister Wolfgang Schaeuble to create a super-empowered European currency commissioner was a possible way forward, she said, and more European control should be accompanied by a stronger European Parliament.

Such moves would require EU treaty changes which Hollande is keen to avoid. He recalled that French and Dutch voters had rejected a previous attempt to tinker with EU institutions in referendums on a European constitutional treaty in 2005.

French Budget Minister Jerome Cahuzac told BFM TV that if the German budget czar idea required giving away more national power to Brussels, “the president has made his position clear in refusing to alter the (French) constitution … because Francois Hollande has not accepted a new transfer of sovereignty”.

Merkel also advocated the creation of a European fund to invest in specific projects in member states which she said could be fuelled by a financial transaction tax which 11 euro zone countries have said they will adopt.

Her call echoed a proposal by the heads of four EU institutions for the 17-member euro zone to have its own budget – known in EU jargon as a “fiscal capacity” – on top of the 27-nation union’s common budget, which mostly funds agriculture and aid to poorer regions.

Reuters

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