Macron’s grand vision reduced to pale imitation

When French President Emmanuel Macron laid out a sweeping vision for euro zone reform last September, he spoke of “rebuilding Europe”, with a common budget for the euro nations and a single minister to oversee it all. The proposals he will discuss when he sits down with German Chancellor Angela Merkel outside Berlin this week will be far less ambitious, with deep differences between the two European powerhouses.

Many economists agree with Macron that fundamental reforms are needed to strengthen the euro zone and insulate the single currency — the most potent symbol of Europe’s integration — from future crises, like the 2010-13 sovereign debt contagion that nearly tore the euro apart.

But Merkel has limited room to act due to political pressure at home, and is always at pains to ensure France and Germany aren’t pushing ahead with plans that have no deep backing from the rest of the European Union.

Macron and Merkel will discuss a separate budget for the 19 countries that share the single currency but much smaller than he wanted.

Then there are gaps in opinion over a fund to calm bond markets in a crisis and a backstop for the banking system.

“Things are going in the right direction, but the proposals we’re getting from the Germans aren’t sufficient,” said a French official who acknowledged there were deep differences between the two sides.

A German official said there were still big questions about what sort of agreement Tuesday’s meeting would produce on the budget for the euro zone.

The official said Merkel’s recent political troubles over migration policy could mean she is less inclined to make concessions to the French leader.

Besides the disagreement between France and Germany, it is also the nature of negotiations between the euro zone countries that grand ideas get chipped away at until a compromise is reached that satisfies all parties.

At the weekend, French Finance Minister Bruno Le Maire and his German counterpart Olaf Scholz met in Hamburg to try to resolve much of the nitty-gritty before Merkel and Macron meet.

An official involved in those negotiations said “real progress” had been made in those discussions but acknowledged that two or three key issues still needed to be worked out.

“It’s now up to heads of state to see if the final leap can be taken at the meeting in Germany,” the official said.

Macron is hoping he and Merkel will be able to agree in principle on the budget.

But whatever they come up with is going to be much smaller than his original idea for a fund of “several points” of euro zone GDP, equivalent to hundreds of billions of euros.

The most Merkel has hinted at is “tens of billions”.

The French want the budget to help stabilise member states suffering shortterm shocks and other imbalances.

The Germans are not convinced that a stabilisation fund would work and are wary about creating anything that involves them paying in, for the money to be transferred elsewhere.

There are also gaps in interpretation over how to reshape the European Stability Mechanism, a 500 billion euro fund set up by member states during the sovereign debt crisis to help ward off bond market turbulence.

Another point of contention is a proposed backstop to underpin euro zone banks.

France and others want it implemented before 2024 but Germany has reservations about the timing and wants non-performing loans cleared from balance sheets first.

While Europe’s economy has picked up and there is no immediate sign of financial stress, many analysts maintain that reforms are needed to protect the single currency.

“Make no mistake, the euro desperately needs revamping,” Philippe Legrain, a former adviser to the European Commission president and a senior visiting fellow at the London School of Economics’ European Institute wrote of the reforms.

“The euro zone’s institutional framework also needs fundamental reform in four big areas: finance, fiscal policy, economic imbalances, and democratic choice and accountability.”

The reforms on the table are far from Macron’s vision and a long way from winning universal backing.

Even if Paris and Berlin agree a position, the views of the 17 other euro zone countries still have to be heard.

Historically, a shared Francogerman position has been enough to carry change in Europe.

But the Netherlands, Finland, Ireland, Denmark and four other northern EU states agreed a joint position in March.

They said now is not the time for more reform and worry about proposals that create a ‘two-speed’ Europe, with some rules for the wider EU and others for the euro zone.

“Discussions about the future of Economic and Monetary Union should take place in an inclusive format,” they said.

ECONOMISTS AGREE WITH MACRON THAT FUNDAMENTAL REFORMS ARE NEEDED TO STRENGTHEN THE EURO ZONE AND INSULATE THE SINGLE CURRENCY, THE MOST POTENT SYMBOL OF EUROPE’S INTEGRATION, FROM FUTURE CRISES.