G7 summit 2018 – Picture by European Union.
Tuesday, 19 June 2018, Meseberg Castle, Brandenburg, Germany: France and Germany have reached a compromise ahead of the landmark EU summit in Brussels in June 28-29 during a joint ministerial council held at Brandenburg.
President Emmanuel Macron and Chancellor Dr. Angela Merkel outlined the points in which they reached consensus. The announcement on Tuesday entailed substantive compromises, including on Eurozone reforms wherein Berlin and Paris stood widely apart.
EU Commission
There is a Franco-German consensus on the reduction of EU Commissioners from the current 28. That also means the two countries accept the principle that they may relinquish their own Commissioners on a rotational basis.
Eurozone Agreement
Germany conceded on the need for a Eurozone budget that should be in place by 2021. President Macron made clear that this is to be a real budget, “with annual revenues and spending.” How great a compromise this is for Germany remains to be seen, as it is unclear how this budget will be funded.
The two states have also agreed on the transformation of the European Stability Mechanism (ESM) into a European Monetary Fund that will permanently act as a lender of last resort to states, in exchange for reforms. There is broader consensus that this fund may now also extend aid to troubled systemic lenders, reducing the link between credit risk and country risk.
Pending Franco-German cleavage
France wishes for Germany to take significant steps towards the further economic integration of the Eurozone in the hope that it shall reduce systemic political and economic volatility.
French President Emmanuel Macron has called repeatedly for a Eurozone budget funded by EU-wide taxation. France has advocated an EU-wide corporation tax to fund this budget, that is, an initiative that Germany opposes. In a recent interview, Chancellor Merkel was unwilling to commit to a budget that would exceed a double-digit number in billions of euros.
Germany leads a group of countries with Austria, the Netherlands, and Finland that are net contributors to the EU budget. The group wants to avoid increasing contributions to the EU budget and a number of states vehemently oppose the idea of a single corporate tax, as much of their competitiveness is founded on taxation, including Ireland, Malta, the Netherlands and Luxembourg.
Over the last few weeks, Berlin appeared ready to concede a limited fund rather than a budget – to the tune of €30bn – that would invest in countries undergoing a crisis. It is unclear whether the new “budget” will, in fact, be a limited funding instrument.
Migration Management
The German Chancellor was given a two-week political breathing to broker an EU-wide migration deal by the summit in Brussels (June 28-29).
The Chancellor’s junior coalition partner – the Christian Social Union (CSU) – want immediate immigration curbs. The Chancellor wants to secure a multilateral solution before the leader of the CSU and Minister of Interior, Horst Seehofer, proceeds with his own national plan on migration.
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