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Franco-German eurozone reform plan faces growing opposition

Eurozone reform

Franco-German eurozone reform plan faces growing opposition

A dozen states reject proposed joint budget for single currency area

Angela Merkel and Emmanuel Macron in Meseberg, Germany, on Tuesday. Their agreement forms part of a broader deal between Paris and Berlin on how to strengthen the currency bloc © Reuters

France and Germany face a growing backlash from other governments against their plans for a common eurozone budget, dealing a blow to the two countries’ ambitions for a big overhaul of the single currency area.

The Netherlands, Austria and Finland are among 12 governments questioning the need for any joint eurozone “fiscal capacity”, challenging a central tenet of French President Emmanuel Macron’s vision for the eurozone that he has successfully pressed Berlin to endorse.

According to a letter seen by the Financial Times, Dutch finance minister Wopke Hoekstra has written to Mário Centeno, the president of the eurogroup, to underline that there is “wide divergence” on the need for any budget, with a number of countries concerned about “moral hazard risks” and questions of “fiscal neutrality” posed by the plan.

Mr Macron and Germany’s Angela Merkel, the leaders deemed essential to any agreement over European reforms, tried to restart their close collaboration this week ahead of a wider summit of EU leaders. They agreed that a new common pot of eurozone money could be funded by a mixture of national contributions and new EU levies, such as a financial transactions tax.

Their agreement forms part of a broader deal between Paris and Berlin on how to strengthen the currency bloc.

But EU diplomats said Ms Merkel’s concession to Mr Macron had emboldened other countries to resist the blueprint, out of concern that it would leave their taxpayers too exposed to problems in crisis-hit member states.

Officials said the splits were apparent at a meeting of EU finance ministers in Luxembourg on Thursday, with increasing signs that governments have formed competing camps with distinct visions on the direction of further integration.

In his letter, Mr Hoekstra insisted that the lack of the agreement on the budget be clearly communicated to leaders at next week’s summit.

“There was clearly no consensus on starting to explore options” at Thursday’s meeting of finance ministers, Mr Hoekstra wrote, adding there was also no agreement to start exploring the use of a financial transactions tax to finance it.

The letter was written by the Dutch finance minister on behalf of Belgium, Luxembourg, Austria, Sweden, Denmark, Finland, Latvia, Lithuania, Estonia, Ireland and Malta.

The list of 12 countries expands a coalition dubbed the “Hanseatic League” — an initial group of eight smaller fiscally conservative countries, which have insisted on more national responsibility to solve economic problems in the eurozone.

Berlin and Paris have insisted that a Franco-German deal on reforming monetary union is not a fait accompli for the rest of the eurozone.

Responding to the letter, Olaf Scholz, German finance minister, said the budget blueprint was a “starting point for discussion” and said he wanted to encourage critics — many of whom have been Berlin’s natural allies on eurozone reform — to voice their opposition.

“If we want to have a common decision-making process, a common solution, this is has to be an open debate at the beginning,” said Mr Scholz. “I’m quite optimistic that we will find a solution.”

Bruno Le Maire, French finance minister, said on Thursday: “It is not a take it or leave it road map . . . It is open for discussion for negotiations among members of the eurozone.”

The Dutch letter proposes that EU leaders refocus their efforts on key demands made by hawkish countries since the start of the year, including a call for bondholders to undergo a haircut should a country’s debt pile become unsustainable.

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