EUROPE > BRUSSEL S AND THE CAPITAL S
EUROZONE: HOLLANDE WANTS
ECONOMIC GOVERNMENT
May 20th 2013 r.
WOJCIECH SZACKI, Senior Analyst for Political Affairs
Crisis-weakened François Hollande projects sweeping European integration,
but Berlin will not accept changes without a further belt-tightening.
TIME-LINE
Early 2014 EC to present treaty change proposals
27-28 June, 2013 European Council meeting on Eurozone reform
22 May, 2013 European Council – to talk informally about Eurozone
June 2012 discussion starts on deeper integration within Eurozone
KEY POINTS
Economy in shreds, presidency in crisis. The anniversary of François Hollande's inauguration coincided with the release of more bad
news on the French economy. GDP shrank by 0.2 per cent in the first quarter of 2013, while unemployment reached its record high
since 1997: 3.2 m. One year after his election, support for Hollande has plunged; only 27 per cent of the French still trust the president. If an election were held today, Hollande would lose not only to Sarkozy, but to Marine Le Pen as well.
Hollande's position in Europe is weakening. The French president has not been able to force through a departure from the policy of
cuts. The Compact for Growth and Jobs he promoted in 2012 turned out to be little more than a bunch of empty slogans. Hollande
has totally given way to Angela Merkel, without whom no serious changes can be made in Europe. The German Chancellor had a
casting vote in budget negotiations and is now at the frontline efforts towards of banking union. Unlike Hollande, she is trusted by
most voters; the CDU continues to lead in opinion polls.
Hollande wants to build a federal Europe based on the Eurozone. In his Thursday address, meant as a confidence booster in his
presidency and in EU leadership, he said that only an economic government in Brussels could save Europe from economic collapse.
Holland suggests the treaties should be changed within two years and Brussels be given tools to get Europe out of the crisis. Specifically, his proposals include:
• Community debt. Eurozone countries would issue joint public debt instruments, making the debt service cheaper and the cost more
predictable. Berlin is against this, as lower debt service costs in the southern member states would be a disincentive to economic
reform and sustainable public finances.
• Uniform taxation. Paris has long been calling for harmonisation as French CIT rates are the highest in Europe and have got even
higher in the past twelve months. Germany might agree with France on this issue, but the new member states and Ireland, where CIT
is lower, are opposed to tax harmonisation
• A separate Eurozone budget. Paris wants a large, separate Eurozone budget, which would tackle so-called asymmetric shocks or
the economic difficulties affecting individual countries of the currency union, which normally can be dealt with by monetary policies.
Berlin is unwilling to fund another instrument that will allow debt-ridden governments to avoid tightening their belts.
• A Eurozone government and president. Hollande would welcome the establishment of the Eurozone economic government.
It would have its president, it would convene every month and conduct fiscal policies on behalf of the member states of the currency
union. This may be of interest tp Germany, as it is dissatisfied with the Commission's economic policies and has considered moving
some of its powers to the European Financial Stability Facility.
OUR V IEW
No politician before Hollande has spoken so strongly in favour of Eurozone integration. The French president is effectively proposing
a new state based on the currency union, which will render the rest of the EU insignificant. Hollande's vision is different from
Merkel's, but the latter may find it attractive, as she is not too happy with her role as the “bad cop” of Europe. Decisions on the
restructuring of the Eurozone were planned for the June summit but will most certainly be delayed in view of the Bundestag elections
next September, after which Merkel may be more sympathetic towards the French president's ideas.
By purchasing this service, the customer is entitled to use the database
of POLITYKA INSIGHT to print off a single copy, without
the right to distribute or give further access to other people, and
in particular without passing on the password and login details of
the POLITYKA INSIGHT provider. Any other usage of the
content without the written consent of Polityka Info Sp. z o.o. is forbidden.
B E I N T H E K N O W.
Polityka Insight
6, Słupecka Street, 02-309
Warsaw, Poland