'Fait accompli' deal criticized by EU

Germany, France propose pact to boost euro zone economy, but EU institutions and smaller states voiced frustration over 'fait accompli' deals

'Fait accompli' deal criticized by EU

Germany and France proposed a competitiveness pact for Europe on Friday and EU leaders discussed strengthening a euro zone rescue fund, hoping to win back market confidence in the bloc's public finances.

But there was almost immediate opposition to the Franco-German proposals, both on the way they were laid out without discussion and on the substance of the measures.

Paris and Berlin -- the driving forces behind euro zone policy -- set out a wish-list of measures they want euro zone and other countries to sign up to including:

* limits on debt levels written into national laws

* a higher retirement age, based on demography

* the abolition of wages indexed to inflation, and

* a minimum corporate tax rate

"Germany and France will make it very obvious that we intend to defend the euro as a currency ... we also want to defend it as a political project," German Chancellor Angela Merkel told a joint news conference with French President Nicolas Sarkozy just before a presentation to EU leaders.

"We want to send out a clear message, that as the European Union, we intend to grow together. What we want to establish is a pact for competitiveness," she said.

Several smaller euro zone countries said elements of the proposal would be hard to accept.

"I don't think it's possible for the European Union to regulate the pension age because there are large differences in the individual countries," Austrian Chancellor Werner Faymann said. "I don't think it's right to interfere in wage negotiations, like some have demanded."

Ireland opposes a minimum corporate tax rate, Belgium, Spain and Portugal oppose the abolition of index-linked wage increases, and the retirement age measure is widely disliked.

EU states not happy

Most of the proposals by Berlin and Paris have already been set out by the European Commission in January in its Annual Growth Survey as part of the new, tighter budget coordination process called the European Semester.

European Commission President Jose Manuel Barroso said on Wednesday there was no need for separate agreements between governments on more economic cooperation since the same could be done on the basis of the Commission proposal.

"Establishing a system of reinforced economic governance for the EU, and in particular the euro area outside the union framework raises important, and politically very sensitive, questions," Barroso told parliament on Wednesday.

"We need, and we have been in favour of, more policy coordination, better economic governance, but we have to do it in a way that is coherent and compatible with the treaties and with the community approach," he said.

Laws in the EU can be proposed by governments, with binding actions agreed on by heads of state and government. The European parliament is consulted in the process in what is called the inter-governmental method.

The pact put forward by France and Germany is similar to proposals made by the European Commission in January in its annual growth survey, which is part of the new, tighter budgetary and economic policy coordination process.

But instead of developing the Commission proposal, Paris and Berlin chose to submit their own, because a deal between governments may often be readied more quickly.

"Merkel and Sarkozy should bear in mind that we are not working to their agenda or proposals but on what comes from the Commission. We will not rubber stamp anything which fails to address the underlying causes of the crisis, namely the weak fiscal discipline of previous years," Bowles said.

But France and Germany hope a deal between governments will ensure an agreement is reached more quickly -- an important factor given the pressing nature of the debt crisis.

The two biggest euro zone economies want the pact to be part of a "comprehensive package" that leaders agree in March, when they hope to sign off on a series of measures that might help halt the euro zone's year-long sovereign debt crisis.

"We are working hand in glove, France and Germany, with a clear, total determination to support the euro," Sarkozy said.

The package is to include changes to the European Financial Stability Facility, the 440 billion euro bailout fund agreed last May, to increase its effective lending capacity and give it more flexibility on how to use its money.

"Concrete proposals"

In draft conclusions prepared ahead of the summit, the 27 heads of state and government said they would consider "concrete proposals" for strengthening the EFSF "to ensure the necessary flexibility and financial capacity", with those discussions also expected to be finalized next month.

While no major decisions were expected on Friday, officials are aware that failure to agree on concrete measures before the next summit on March 24-25 could reignite market concerns.

In a sign of returning investor confidence, Spain's borrowing costs fell sharply at bond auctions on Thursday. Portugal has also had encouraging recent debt sales.

Strengthening the EFSF has been the focus of discussion for months, since it became clear its effective lending capacity was only about 250 billion euros, not 440 billion, due to guarantees built into the fund to maintain its triple-A credit rating.

Given its lending limitations, there are concerns that if Portugal and Spain were both to end up needing a bailout, the EFSF would not have sufficient funds.

European Central Bank President Jean-Claude Trichet, who held talks with EU leaders over lunch, is among those calling for the EFSF to be enlarged and made more flexible, so that it is not just a bailout lender of last resort.

The EFSF is the chief weapon in the EU's arsenal, but deep disagreement remains over how it should be strengthened, with Germany determined to secure stricter budgetary commitments from other euro zone members and reforms boosting competitiveness in exchange for agreeing amendments to the fund.

Economics and Monetary Affairs Commissioner Olli Rehn praised Germany for entering the crisis stronger than others in the EU thanks to broad structural reforms since the 1990s.

"It is important for everyone that other countries now manage to do what Germany and a few other member states have already managed in past years," Rehn wrote in a column in the German daily Handelsblatt.

Reuters

Last Mod: 05 Şubat 2011, 10:26
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