* Germany wants euro zone countries to accept binding reform
* France, Italy pushing for financial incentives for
By Paul Taylor
BRUSSELS, Dec 19 German Chancellor Angela Merkel
pressed euro zone leaders at a summit on Thursday to agree on
binding contracts to reform their economies after finance
ministers clinched an outline deal on a common system for
closing failed banks.
Fresh from re-election by parliament at the head of a
left-right "grand coalition", Merkel said Berlin was willing to
offer some financial support to countries that commit to
overhauling their labour markets, public sector, education,
research and welfare policies, under the monitoring of the EU.
"If we got a real qualitative leap forward in terms of
binding commitments ... then we could also imagine that new ways
are found to provide those countries that require additional
help to reach their goals with that help," she told the
Bundestag in a pre-summit speech on Wednesday.
Berlin wants its partners in the 17-nation single currency
to emulate changes it made a decade ago to unemployment
benefits, labour laws and pension system that helped make its
economy more competitive.
However, critics say Merkel's new coalition agreement has
watered down some of those measures by agreeing on a national
minimum wage and allowing earlier retirement for some, setting a
poor example to laggards like France and Italy.
The contracts would add another layer of EU supervision on
top of increased European Commission surveillance of member
states' budgets and economic policies under a raft of new rules
adopted since the euro zone debt crisis erupted in 2010.
In a draft statement prepared for the summit, leaders say
they aim to reach an overall agreement on reform contracts and
"associated solidarity mechanisms" at a summit next June, after
European Parliament elections set for May.
It cited loans, grants or guarantees among the possible
rewards for countries that accepted legally binding contractual
Diplomats said the EU initiative was an attempt to increase
pressure on countries such as France and Italy to loosen job
protection, ease work-time rules, open up closed professions to
competition and make welfare and retirement benefits less
Italian Prime Minister Enrico Letta said on arrival he was
in favour of creating incentives to carry out reforms and Italy
had nothing to fear from the discussion.
A French official stressed that entering such contracts
would be voluntary, and questioned whether the limited funds
likely to be available would provide a strong incentive to
undertake politically unpopular reforms.
European Council President Herman Van Rompuy, who chairs EU
summits, has suggested a small euro zone "fiscal capacity",
separate from the 28-nation EU's common budget, could subsidise
interest rates on soft loans under such a programme, but Berlin
remains wary of any open-ended financial transfers.
A senior German official said the proceeds of a planned
Financial Transaction Tax which 11 like-minded EU states aim to
levy might be used for this purpose.
"The readiness of Germany to generate additional funds is
limited, we have said this repeatedly. Any funds must be
attached to specific projects and limited in time," he added.
Some of Berlin's northern European allies question whether
there is any need for financial incentives, arguing that
countries should carry out reforms in their own interest to
improve their competitiveness and build market confidence.
"Reforms are first and foremost a matter of national
responsibility, but the creation of a common coordination system
will give us a full picture, create peer pressure and ensure
healthy structures," Finnish Prime Minister Jyrki Katainen said.
Dutch Finance Minister Jeroen Dijsselbloem, who chairs euro
zone finance ministers, said last month that cheap loans would
remove any incentive to run a sound budget policy,
"Only differentials in the interest rates charged by the
markets depending on the policies implemented can give the right
signal. Let's not repeat the same mistakes," he said