A road map for the reform of the Eurozone: Proposals and obstacles

By Haya Wakil

Angela Merkel attained her fourth term as the chancellor of Germany on 4^th March 2018 thus ending six months of political deadlock. Merkel, in a timespan of 12 years has established herself as one of the leading and influential figures in the world politics. Her support for the refugees fleeing from war-torn countries like Iraq, Syria and Afghanistan is commendable as it came at a time when other European countries took all possible measures to shut them out.

Emmanuel Macron who unlike Merkel is quite new to the world of politics and presidential elections was his first such elections, has taken a strong stand in favour of immigration and holding on to European Union. The French president was critical because it determined France’s position on Right-wing populism and the future of EU. He is a staunch pro- European centrist biding for common EU policies on defence, asylum and tax. The victory of the Right wing would have definitely affected other European states who were soon to have elections and pre World War II scenario was the last thing anyone wanted to see right now especially with the election of Trump.

Creation of a new roadmap

Merkel and Macron have both pledged to work for a “new start” of Europe and made the formation of eurozone their ultimate goal. Both of them want to formulate a roadmap for the reform of the Eurozone which will be approved by other European Union members in June. Conscious efforts will be made to resolve the differences.

The roadmap will look into the issues like a banking union, budgetary issues, Europe’s stability mechanism and tax convergence. This according to Macron would help the region from external shocks.

Macron was very anxious with regard to the results of the German election as he wanted a solid support from Merkel to back up his plan. A uniform euro currency would allow investment in European projects and tax policies so as to get the corporate giants who often evade tax registered. Macron also wants unique EU identity documents for all, Eurozone finance minister and shared defence budget.

The proposals so mentioned are nothing new as they have been presented earlier as well. The “Roadmap for deepening Europe’s Economic and Monetary Union,” which was published in December 2017, was quite ambitious but so far they have been only on paper. The political resistance coming from the member states is a serious impediment to any kind of reform. There are obstacles to their vision forwarded by their own party men.

New Eurozone forming new obstacles

Wolfgang Schaeuble, Germany’s former finance minister proposed the idea of the creation of European Monetary Fund but the problem comes in its application. For example, whether there should be an automatic restructuring of sovereign debt whenever a country applies to the fund in times of economic crisis. European Stability Mechanism which was created in the heat of the Eurozone crisis was proposed to be replaced by European Monetary Fund.

Like for Merkel’s conservative bloc, there is a little apprehension because that would mean a pooling of Germany’s resources in a pool of risk along with other unstable or rather less stable countries. According to economists, the external shock would hit different member states in different ways and pooling of resources might minimise the effect and avoid any sort of financial panic. She has clearly stated her opposition to the mutualisation of debt in Europe and that Berlin although willing to cooperate in the post Brexit scenario, won’t give a blank check.

Also when it comes to funding members hit by shock the Eurozone fiscal rules are ambiguous and flexible to the interpretation of its budgetary benchmarks.

Major European nations ignoring small ones

The new government in Germany is cautious in taking radical decisions because of the coalition form of government and also cautioned Macron on this. A definite support for the reforms has not been proposed but Germany has stated that it is willing to work together with France and find “common paths”. This meeting of Merkel and Macron on Friday at the Elysee Palace drew in a lot of remarks by other member states. This visit was also Merkel’s first foreign visit after attaining her fourth term as the President.

The Dutch Prime Minister Mark Rutte said that the issues of smaller EU states shouldn’t be ignored by France and Germany. The very fact that the two countries met and decided on a ‘roadmap of EU reforms’ without the presence of other member states raised certain speculations. Finance Ministries of Denmark, Ireland, Sweden and the Netherlands have suggested that more attention should be given in implementing the already passed measures and reforms like completing eurozone banking union rather than looking for a fresh set of “far-reaching proposals”. This feeling of alienation experienced by the member states is something that Macron and Merkel need to work on.

European continent, although looks like one common block but each of the member states have problems and concerns of their own and reaching a common solution in this highly unequal world is very difficult.

While Franco-German roadmap for the whole Eurozone is expected to come by June this year, lack of clear political will is noticed among many of the member states and the efforts of just two people pushing for a more effective union might not be enough.

2018 will be a decisive year for Europe and it seems like Germany and France are working very hard to push for a stronger and united EU. The vision for a global leader and on equal footing with US and China is something which both of them are looking forward to.