Germany, France launch drive for cross-border governance

4th February 2011, Comments 0 comments

Germany and France asked European neighbours on Friday to back unified, cross-border policies in a bid to start governing the 17-nation eurozone economy as one.

But Belgium for one announced it opposed aspects of the plan on entering a summit due to consider the proposal.

"We are going to discuss proposals that Germany and France are making for greater coordination of economic policy across the eurozone," said German Chancellor Angela Merkel on arrival for the summit of European Union leaders otherwise dominated by the crisis in Egypt.

Belgium's Prime Minister Yves Leterme said he was "absolutely not in agreement" with the plan to harmonise eurozone governance that includes a bid to do away with index-linked wage rises.

"There must be more economic cooperation, but member states must be left the room to carry out their own policies," Leterme said on arrival.

"Each member state has its own accents, its own traditions. We will not allow our social model to be undone," he added.

Merkel said: "It's about improving our competitiveness and showing clearly our political will to grow together (economically), particularly in the eurozone."

A joint declaration to the press by Merkel and French President Nicolas Sarkozy was to be made at 12.30 pm (1130 GMT) in the Brussels summit venue.

The 27 EU heads of state and government meeting in Brussels are seeking to strengthen a 440-billion-euro ($600 billion) rescue fund -- as both Greece and election-mode Ireland seek to renegotiate last year's bailout terms.

The leaders want to finalise "concrete proposals... to ensure the necessary flexibility and financial capacity to provide adequate support" for the uses they can foresee, according to draft conclusions set for adoption.

Final decisions are due at their next summit, planned for March 24-25, amid calls for the eurozone's 17 leaders to stage a special summit of their own, tipped by diplomats to take place on March 4.

First of all, the EU wants to make the fund's full depth operational. At present some 200 billion euros must be kept back as a cash buffer.

Leaders will also consider letting the Luxembourg-based European Financial Stability Facility (EFSF) buy bonds from countries struggling to raise funds cheaply on markets, or lend the likes of Greece cash to buy back bonds that have already lost up to 30 percent of their value trading on open markets.

Some leaders want an early bailout for Portugal and a sort of overdraft for Spain, officials indicated in the run-up to the talks.

The trade-off with Germany for further exposure to partners' financial weaknesses will mean both tighter budgetary discipline and convergence of economic policy in order to iron out inequalities in national eurozone economic performance.

France and Germany have drawn up a six-point programme that would see inflation-indexed wages disappear and corporation tax regimes harmonised to a large degree.

Educational qualifications would be recognised across borders, to help labour mobility, while a commonly agreed system for managing banks in trouble would also be installed.

They also want to introduce ceilings on permissible national debts, mirroring Germany's constitutional "brake" that limits its structural budget deficit to 0.35 percent of GDP by 2016.

However, diplomats warn that some of the southern eurozone nations, including Portugal, fear being railroaded down an even more painful path of reform.

The plans have also irritated European Commission president Jose Manuel Barroso, as their management would appear to circumvent the EU executive's existing powers as enshrined in treaties.

© 2011 AFP

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