LDN - Business

Merkel, Macron meet to plot euro zone reform road map

[April 19, 2018] By Paul Carrel

BERLIN (Reuters) - The leaders of Germany and France meet on Thursday to try to work out a common position on reforming the euro zone, a sensitive issue that is testing the new government in Berlin just a month after it took office.

Chancellor Angela Merkel, who hosts President Emmanuel Macron for the working meeting, is under pressure from her conservative bloc in parliament not to agree to any reforms that result in German taxpayers funding what they see as profligate euro zone peers.

Macron's vision includes turning Europe's existing bailout fund into a European Monetary Fund (EMF), to act as a buffer in any future financial crisis in the bloc.

He has also suggested the euro zone have its own finance minister and, at one point, floated the idea of a budget for the currency bloc worth hundreds of billions of euros.

"We have lots of institutions, why another one?" asked Ralph Brinkhaus, deputy leader of Merkel's conservative bloc in parliament and a budget expert.

"And on the euro zone budget, why should the euro zone, in addition to the European Union, have an extra budget?" he told broadcaster ARD. "Why something else again?"

At a meeting with conservative lawmakers on Tuesday, Merkel trod a careful line between Macron's drive for bold reform and their push to retain scrutiny over any European Monetary Fund developed out of the existing euro zone bailout fund.

Officials in Berlin and Paris both express confidence that they will find a common stance before an EU summit on June 28-29.

"Let me reassure you that the silent, secret, demanding work under way will allow us to reach a true Franco-German roadmap by the time of the next European summit in June," French Finance Minister Bruno Le Maire told lawmakers in Paris on Wednesday.

In Berlin, a government spokeswoman said Germany and France "have the firm desire to find a joint way forward", echoing Merkel's own cooperative tone at a news conference on Tuesday.

France and Germany, which account for around 50 percent of euro zone output, are essential to the reform drive. But while they often put on a strong show of political unity and shared intent, the devil is frequently in the detail.

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German Chancellor Angela Merkel welcomes French President Emmanuel Macron at the building site of the Humboldt Forum in Berlin, Germany, April 19, 2018. REUTERS/Axel Schmidt

"JUMBO COUNCIL"

On Tuesday, Merkel said creating a euro zone banking union was a priority for her, but she also broadened out the reform question to include a European asylum system, as well as foreign, defense and research policy.

Framing reform as such a broad issue risks diluting Macron's drive to beef up the euro zone with extra funding firepower.

Merkel also wants to make economic competitiveness a priority for the euro zone, rather than simply amassing funds for countries in trouble, and has suggested a "Jumbo Council" of European finance and economy ministers, government sources say.

But in an indication of the divisions within her government on euro zone reform, the Handelsblatt business daily reported that Merkel's junior coalition partner, the left-leaning Social Democrats (SPD), reject the idea.

The SPD sympathizes with Macron on the euro zone and wants him to be rewarded for his efforts to reform the French economy, well aware that a big chunk of French voters remain susceptible to far-right and far-left populists skeptical about the EU.

Merkel's conservatives are more reserved.

Asked if Macron would come away from Thursday's meeting with no new financial commitments, Brinkhaus said: "He has already got a lot financially and Europe has got a lot financially, and of course we will continue to invest in good projects."

(Additional reporting by Leigh Thomas in Paris and Andreas Rinke in Berlin; Editing by Toby Chopra and Jon Boyle)

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