Re-elected Angela Merkel curbs Macron’s euro reform plans

German chancellor Angela Merkel started her fourth term where she ended the third: with her foot on the brake of France’s euro reform agenda.

Caught between ambitious French president Emmanuel Macron, who wants to pick up the pace, and her own camp wary of reforms that burden German taxpayers, the chancellor made clear that the new Merkel is the old Merkel.

“We have made clear in our coalition agreement that we are ready to provide more money for the EU budget,” said Merkel to German broadcaster ZDF, hours after she was sworn in for a fourth term.

“But what is not on is to confuse liability and responsibility, or to simply mutualise debts without becoming competitive.”

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In Wednesday's Frankfurter Allgemeine daily, Macron – waiting since September for a Berlin response to his euro overhaul ideas – insisted he had used the German interregnum to drive on labour market reform and other changes in France.

This allowed him “to expect a very different role” in negotiations with Berlin, which has insisted its acceptance of French proposals on the single currency bloc hinge on Paris implementing long-delayed reforms – and reducing its public deficit.

“Today we can say to Germany: we started the work, you cannot pull back to the status quo,” said Macron in the lengthy interview.

Aware of the expectations on her, after an almost six-month interregnum, Merkel didn’t rule out euro reform. As before last year’s election campaign, she suggested that countries’ debts could be mutualised at some point if other EU states improved their competitiveness.

Bank guarantee

Members of her centre-right Christian Democratic Union (CDU) are wary of anything that looks like unconditional debt mutualisation and paranoid about a common bank guarantee scheme – both proposals on the reform agenda.

They are even more paranoid since the departure from the finance ministry of hawkish Wolfgang Schäuble, and the arrival on Wednesday of a successor from the centre-left Social Democrats.

Olaf Scholz has insisted he will continue the balanced budget and fiscal restraint of his predecessor, but in last year’s election campaign the SPD leader Martin Schulz was far warmer to the Macron proposals than the CDU. With Schulz now history, it remains unclear how much appetite the SPD has to partner with France – and challenge Merkel’s Christian Democratic Union on euro reform.

Berlin’s grand coalition agreement backs the idea of transforming the European Stability Mechanism bailout fund to a European Monetary Fund. However it makes no reference to a proposed euro finance minister and says that additional euro spending “may” form the basis of a future euro zone investment budget. Germany is willing to agree a higher contribution to fill the budget hole left by the UK’s departure, the paper said, without indicating by how much.

Tax co-operation

Officials in Paris and Berlin are working on a paper expected to spell out closer tax co-operation between the two countries, and to flesh out the promise in Berlin’s programme for government to tackle “tax dumping, fraud and avoidance” of large US tech companies, including Google, Apple, Facebook – all with US headquarters in Dublin.

But the delay in forming a Berlin coalition, and the difficulty in finding common ground with France, means that joint Franco-German proposals for euro reform will now not be presented as planned at next week’s European Council meeting in Brussels. Merkel will travel to Paris on Friday.

In her television interview, Merkel said she took “very seriously” the nerve agent attack in Britain, blamed by London on Moscow. The EU would find a common response, but Merkel added: “We must still talk with the Russians despite all differences of opinion.”