EUROPEAN OFFICIALS are examining a new revision of the EU treaties to create a “fiscal union” in which member states would transfer another swathe of budgetary powers to the authorities in Brussels.
The German-led initiative comes only a fortnight after Irish voters endorsed the fiscal treaty and may well lead to a new Irish referendum.
Although the process remains at a very early stage, a senior EU diplomat said this work reflected the increasing urgency of the situation.
If this effort is to succeed, it would have to overcome numerous political obstacles. Any push to yield more budgetary sovereignty to the EU authorities would be certain to meet resistance in France, Britain, the Netherlands and other countries.
The talks come as Greeks prepare for an election rerun tomorrow, a poll that could lead the country out of the single currency. The fallout from the election is expected to dominate a G20 summit, which begins on Monday in Los Cabos, Mexico.
A surge in Spanish borrowing costs this week has also raised questions over the viability of the week-old European rescue plan for its banks and raised the prospect that the country might need a full-blown bailout. Italy has also been under pressure this week.
Germany is resisting an increasing clamour to mutualise the debts of stricken euro zone countries, arguing that appropriate conditions are not in place to ensure fiscal discipline and rigorous debt reduction.
Chancellor Angela Merkel is also opposing a French-led attempt to widen the mandate of the European Central Bank and the ESM permanent bailout fund.
Tentative discussions on a reopening of the treaties reflect concerns in Germany that member states must now go further to align their fiscal policies than was foreseen in the fiscal treaty, which was agreed only months ago.
The senior diplomat said this process was likely to result in the core elements of national budgetary policy being subsumed into a wider European policy in a system grounded in the treaties.
The essential aim is to put new measures to establish a fiscal union on a par with steps taken to create Europe’s monetary union in the Maastricht treaty of 1992.
“The impression I get from various German sources is that they are not going to put their money on the table in return for vague promises,” the diplomat said.
The talks come ahead of an EU summit at the end of this month in which a committee of four “wise men” is due to present proposals to strengthen the single currency.
European Council president Herman Van Rompuy, EU Commission chief José Manuel Barroso, European Central Bank chief Mario Draghi and euro group leader Jean-Claude Juncker are not expected to reveal their plans until days before the summit begins on June 28th.
Treaty change is intrinsically time-consuming, raising serious questions as to whether any summit pledge to embark on that road would be sufficient to convince restive markets that Europeans are finally asserting control over the debacle.
Officials believe such measures might lead Germany to accept debt mutualisation at some point but there are doubts whether that would calm the turmoil in the euro zone.
Mr Van Rompuy is separately developing a proposal to meet French demands for a new package of measures to stimulate economic growth by way of a formal statement from the European Council, as the assembly of leaders is known. Such a “council decision” would be designed to ensure newly-installed French president François Hollande ratifies the fiscal treaty. Mr Hollande has pushed to reopen the treaty but Dr Merkel, its chief author, is unwilling.
Dr Merkel openly criticised France yesterday, saying Europe must debate the growing gap between the French and German economies. Germany had opened up a growing competitiveness lead against France in the last decade, saying this was a question “that must be discussed in Europe, naturally”.
