The Brief – The price of a hollow eurozone budget

More than a year after Emmanuel Macron won the presidential elections in France, and following three months of arduous negotiations between Paris and Berlin, the French president finally got his trophy: a specific budget for the eurozone.

Chancellor Angela Merkel accepted in a bilateral meeting held near Berlin setting up this fund to support investment and to stabilise the region in times of turbulences, as part of a broader deal to complete the euro area’s architecture.

“We are opening a new chapter,” Merkel said.

Macron and Merkel actually outdid themselves, given the “very low expectations” on the agenda to bolster the euro, as a senior EU official noted this week.

The rest of the EU leadership could do the same next week, when they need to agree on the roadmap to complete the economic and monetary union.

In that regard, Macron and Merkel’s handshake represents some progress, but it is far from the expectations set by the French president.

Merkel accepted setting up a eurozone budget. But the document suggests that it would be closer to the tool she had accepted in the past rather than a proper budget of “various points” of eurozone GDP championed by Macron (that surely would surpass €300 billion)

No figure was given, but France and Germany proposed that the resources should come from national and European contributions. The problem is that they rely on a financial transaction tax in the making for the last seven years, a digital tax opposed by half of member states and a share of corporate taxes once the Common Corporate Tax Base has been finally consolidated, if happens.

In addition, Macron did not secure a commitment from Merkel on the long postponed European guarantee to protect deposits, the main outstanding pillar of the banking union.

On the European Stability Mechanism’s backstop to support the resolution of failing banks, the low-hanging fruit of the eurozone agenda, the chancellor got her way in ensuring that there would be political oversight.

Now finance ministers and a few national parliaments, including the Bundestag, would have to okay the disbursement of the funds overnight to orderly resolve them before they open in the morning. Could anybody imagine a better way to muddy the waters of an already complex process of winding down a bank?

Macron also accepted Merkel’s plan to introduce a mechanism to restructure sovereign debt of countries requesting financial assistance.

The collective action clause would not have the automaticity that was once requested by the almighty Wolfgang Schäuble, but it could still cast a shadow on European sovereign debt and deter investors as it happened in the past. For that reason the Commission is not a big fan of the idea.

The agreement left some positive novelties, including a European Unemployment Stabilisation Fund. Eurozone countries could borrow funds in times of crisis to complement their social security systems and would pay it back when the sun is shining.

However, the agreement did not say how costly the loans would be, or whether there would be conditions attached (such as introducing labour market reforms).

Macron could hardly get much more out of Merkel aside from a ‘eurozone budget’ poor in details, as her attention is very much diverted at home and abroad on migration.

After months of no progress, his instincts rightly suggested him getting her support before arriving to a European Council summit next week where a strong group of countries opposes his ideas, already largely overshadow by the migration crisis.

This may be the real reason why Merkel finally gave Macron his precious goal. As pressure keeps mounting from the CSU, member states like Italy, Austria and a few others, and the external borders, she only had to say those two words to get him off her back and win the French president’s full support on the migration front.

A few hours later the agreement was reached, an extraordinary summit on migration was convened in Brussels on Sunday, as it was already leaked in Germany last weekend. Coincidences are quite rare in politics, perhaps with few exemptions: #WorldRefugeeDay.

The Roundup

By Alexandra Brzozowski

World Refugee Day is a reminder for EU leaders that reforming the migration system is urgent. EU leaders feel too that time is running up – and will hold crisis talks on migration this Sunday in Brussels. ‘Disembarkation platforms’ outside the EU are considered as possible solution to end the migration row.

While progress has been made on several technical sections of Brexit negotiations, “serious divergences” remain between Brussels and London over the issue of Northern Ireland. The border itself has its very own take about its status gamble.

Governments did not deliver benefits that were promised to citizens, claims the OECD’s SecGen in an interview and blames them for the rise of populism and political fragmentation across Europe.

Young people are often forced into precarious work. Regardless of their age, they should not only be able to earn enough to survive but also live well, says British MEP Sion Simon.

After another all-night session, trilogue negotiators stroke an early morning deal on the energy governance bill. Also, the energy savings law limped across the finish line.

Germany is no longer a pioneer in climate protection, says an energy expert, as a long awaited  coal commission kicks off in the Bundesrepublik. Meanwhile, Chancellor Merkel warned that auto and coal workers need to know what their next jobs should be.

Dozens of farmers from across Slovakia drove their tractors into the capital Bratislava to protest against alleged irregularities in EU farm subsidy payments first made public by murdered journalist Jan Kuciak.

Look out for…

Commissioner Dimitris Avramopoulos in Brussels will present the Commission’s contribution on migration matters to the upcoming European Council summit.

World Cup Watch

Lesson learned from Poland game against Senegal:  a Lewandowski alone does not win a match. Portugal’s Pepe put in another fine performance worthy of Oscar nomination against Morocco. And if the Netherlands and Belgium were one country, we’d have one sick team.

Matches tomorrow: DEN-AUS | FRA-PER | ARG-HRV

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