Manoeuvring Room For the Budget

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 Federal Chancellor Angela Merkel rejected once again before the Bundestag the idea of a pooling of national debts. "We are working to break the vicious circle of indebtedness and breaches of rules", Merkel said in the run-up to the European Council.

In her policy statement, the Federal Chancellor warned against relying on quick and easy solutions to solve the European debt crisis. "There is no such thing as the ultimate act of liberation." Instead, we must see the challenge as a process made up of steps and measures that tackle the problem at its root. As causes for the crisis, Merkel enumerated some "homemade" problems that will need to be eliminated and avoided in the future: first of all, the lack of competitiveness of certain euro zone countries, but also some fundamental construction faults in the Economic and Monetary Union, as well as massive public debt. The lives of future generations depend on how this government debt crisis will be solved.

Reliability creates confidence

Concerning the future, she said we should "not make any promises we cannot keep, and consistently implement what we have decided on". This is the basis for reliability and "reliability is the basis for confidence" - a valuable asset that has often been trampled underfoot since the founding of the Monetary Union.

In order to restore confidence, the Federal Government is working to break the vicious circle of indebtedness and breaches of rules. It also wants to create a legal framework that would permanently constrain euro zone states to maintain sound public finances. She enumerated some important instruments for this purpose, such as:

  • the reinforcement of the Stability and Growth Pact

  • the signing of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG)

  • the European Stability Mechanism (ESM).

The two latter instruments should be adopted by the Bundestag and the Bundesrat on 29 June. The Chancellor hopes that this will come across as a powerful signal of unity and determination to overcome the European debt crisis in a lasting way.

Consolidation and growth

Improving competitiveness is also crucial as a basis for sustainable development, Merkel said. The euro zone states already set this goal for themselves last March with the "Euro Plus Pact". Now it is important to create growth and above all jobs, without running further into debt. This question will also once again be the focus of the discussions of EU heads of state and government in Brussels on 28 and 29 June. "Consolidation and growth go hand in hand", Merkel stressed. It is not a question of "saving for the sake of saving". Indeed, it is about recovering manoeuvring room for a fiscal policy that should not be implemented at the expense of future generations.

Growth and employment pact

To complement the TSCG, the EU summit is set to agree on a powerful Growth and Employment Pact that will also focus on member states' structural reforms for more competitiveness. Merkel praised first successes in this field, especially those being seen in Ireland and Portugal. Italy and Spain are also on the right path.

Tackling youth unemployment with "EURES"

Combating youth unemployment remains a top priority. This can be achieved through incentives for enterprises to recruit and train young people so that unemployed youths have the opportunity to find work as fast as possible. Cross-border job opportunities need to be encouraged. The EURES ("EURopean Employment Services") programme plays an important part here, which is why the EU wants to expand it and increase its funding.

In Brussels, the Chancellor wants to argue in favour of focusing EU spending more on promoting competitiveness and growth. This also means increasing the capital of the European Investment Bank (EIB). All these measures should facilitate lending to small and medium-sized enterprises and thus help create and secure jobs. These measures would add up to 130 billion euros, or one percent of the GDP of the European Union, and would send out a powerful signal.

Building blocks for a stable Monetary Union

The Chancellor emphasised four essential elements in order to correct the aberrations of the Economic and Monetary Union. They are also part of a joint report by the presidents of the Council, the Commission, the Eurogroup and the European Central Bank. These elements are

  • integrated co-operation between systemically relevant banks,

  • an integrated tax policy,

  • a framework for an integrated economic and competition policy,

  • democratic legitimation of enhanced co-operation between euro zone members.

Merkel also disputed the view set out in the report according to which the pooling of liabilities should have priority over Community controls. She stressed that controls and liability should be in the right balance: joint liability can only apply if sufficient controls are ensured.

Merkel expects controversial discussions in Brussels on all these questions, and Germany will certainly be once more in the spotlight. This is why she wants to reiterate that, even though Germany is an economic driving force and a pillar of stability, its strength should not be overestimated. Excessive demands on Germany would have unforeseeable consequences for Germany and Europe, "and we will not allow that", Merkel said.