NEWS, 12.06.2012.

France keen for budgetary union in Europe

 

France said today it would support taking steps towards budgetary integration in Europe, as Berlin wants, but the first priority must be to agree urgent measures to solve the euro zone's debt crisis.Following talks in Paris with his German counterpart Michael Link, France's European Affairs Minister Bernard Cazeneuve said the issues could be worked on in parallel but a fiscal union could not be built until the current crisis has been brought under control.His comments were the latest sign EU leaders are aiming for an ambitious compromise at a June 28-29 summit where France and southern euro zone countries would get an agreement from Berlin to a growth pact and a path towards a banking union and euro bonds in return for a commitment to work towards fiscal union.Separately, a presidential source said President Francois Hollande will outline France's position in a written submission to the European Council in the days ahead."We very much wish to continue the political discussion on the process of greater economic and monetary integration and we believe, like our German friends, in the building of a political Europe," Cazeneuve told reporters, flanked by Link."At the same time, what comes out of integration measures cannot constitute the response to the urgency of the crisis we face," he added. "We continue to say that given the scale of the crisis we need urgent solutions for growth."Hollande, France's first Socialist president in 17 years and little known internationally before he won the May 6 election, has come to power as political woes in Greece and Spain's banking crisis have thrust the euro zone into new turmoil.His challenge to German Chancellor Angela Merkel's insistence on austerity-only policies looks set to result in EU leaders agreeing on a pro-growth pact to accompany a budget discipline pact agreed earlier this year.But calls by Paris and Madrid for a banking union giving a cross-border agency supervisory powers over European lenders and for steps towards mutualised debt have prompted Merkel to demand agreement in return on an eventual fiscal union that would give Brussels more power over budgets.Compromises Hollande is more open to the idea of ceding sovereignty to EU institutions to safeguard the euro than was his conservative predecessor Nicolas Sarkozy, but faces a struggle selling the idea to a public that is angry over economic gloom it increasingly sees as resulting from monetary union.Hollande is on track to win a solid Socialist bloc majority in a parliamentary election runoff on Sunday that should make it easier for him to cut a deal with Berlin, as he would not need the support of eurosceptic hard-left lawmakers.A top European Central Bank policymaker, Joerg Asmussen of Germany, said he expected relations between France and Germany, the EU's biggest powers, would settle down after the election."I am relatively relaxed (about relations)... I am very certain that after that (the election runoff) the German-French engine will function, which is a necessary precondition to get progress in Europe," he told a business gathering in Berlin.The French presidential source said Paris's preparatory text for the June 28-29 treaty would seek to find "positive talking points and areas of agreement". Cazeneuve said the days ahead would be about compromise."We want to find a way for the European Union to overcome this crisis and for that you need compromises," Cazeneuve said."There will be no political integration if we do not suceed in overcoming the financial and economic crisis and we will not manage to overcome the crisis if we do no not have a supplementary process of integration."Earlier on Tuesday, French Finance Minister Pierre Moscovici said an aid package of up to 100 billion euros for Spain's banks was the first step towards a banking union in the euro zone."What we did for Spain was a convincing step forward but we must go further still," he told Europe 1 radio. "It is the moment where Europeans must define the framework for definitively consolidating the euro in political, budgetary and social terms."Germany believes that a banking union - comprising a common financial regulator and a single deposit guarantee and capitalisation fund for banks - could only work if anchored in a fiscal union with powers to stop members breaking budget rules.Hollande is to meet senior German SPD social democrats in Paris on Wednesday for discussions on Europe as the centre-right Merkel battles to obtain the two-thirds majority support she needs to ratify the EU's fiscal pact and pass a bill on the new European Stability Mechanism, a permanent bailout fund.The SPD leaders will sit down with Merkel earlier on Wednesday as they try to agree a proposal for a financial transaction tax that the SPD wants to make a condition for its support for the upcoming European bills.Even before his election, Hollande had the support of Germany's left for his push for growth instruments like joint project bonds to fund infrastructure projets and an increased lending capacity by the European Investment Bank.

Details emerging of plan B for Greek exit

 

European finance officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls as a worst-case scenario should Athens decide to leave the euro.EU officials have told Reuters the ideas are part of a range of contingency plans.They emphasised that the discussions were merely about being prepared for any eventuality rather than planning for something they expect to happen - no one Reuters has spoken to expects Greece to leave the single currency area.But with increased political uncertainty in Greece following the inconclusive election on May 6 and ahead of a second election on June 17, there is now an increased need to have contingencies in place, the EU sources said.The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the currency.No decisions have been taken on the calls, but members of the Eurogroup Working Group, which consists of euro zone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said. Belgium’s finance minister, Steve Vanackere, said at the end of May that it was a function of each euro zone state to be prepared for problems.These discussions have been in that vein, with the specific aim of limiting a bank run or capital flight.As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union."Contingency planning is underway for a scenario under which Greece leaves," one of the sources, who has been involved in the conference calls, said."Limited cash withdrawals from ATMs and limited movement of capital have been considered and analysed."Another source confirmed the discussions, including that the suspension of Schengen was among the options raised."These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality," the second source said."It is sensible planning, that is all, planning for the worst-case scenario."The first official said it was still being examined whether there was a legal basis for such extreme measures."The Bank of Greece is not aware of any such plans," a central bank spokesman in Athens told Reuters when asked about the sources' comments.The vast majority of Greeks - some surveys have indicated 75 to 80%- like the euro and want to retain the currency, something Greek politicians are aware of and which may dissuade them from pushing the country too close to the brink.However, SYRIZA is expected to win or come a strong second on June 17.Leader plans to tear up bailout Alexis Tsipras, the party's 37-year-old leader, has said he plans to tear up or heavily renegotiate the 130-billion-euro bailout agreed with the European Union and International Monetary Fund.The EU and IMF have said they are not prepared to renegotiate.If those differences cannot be resolved, the threat of the country leaving or being forced out of the euro will remain, and hence the need for contingencies to be in place.Switzerland said last month it was considering introducing capital controls if the euro falls apart.In a conference call on May 21, the Eurogroup Working Group told euro zone member states that they should each have a plan in place if Greece were to leave the currency.Belgium's Vanackere said two days after that call that it was a basic function of each euro zone member state to be prepared for any eventuality."All the contingency plans (for Greece) come back to the same thing: to be responsible as a government is to foresee even what you hope to avoid," he told reporters."We must insist on efforts to avoid an exit scenario but that doesn't mean we are not preparing for eventualities."