BERLIN/PARIS, June 19 (Reuters) - France said an investment budget for the euro zone and a backstop for European banks demanded by President Emmanuel Macron are non-negotiable, raising pressure on Chancellor Angela Merkel before talks on Tuesday on reforming the bloc.
French Finance Minister Bruno Le Maire said failure to reach an agreement on reforming the euro zone during talks between the two leader in Meseberg castle outside Berlin could spell trouble for the single currency bloc and the wider European Union.
“This is the moment of truth for the Franco-German relationship, the hour of reckoning for the future of the euro zone,” Le Maire told BMF television.
“Either in the next few hours the president and the chancellor reach an agreement and accomplish a significant step in strengthening the euro zone. Or they are unable to and we will return, and I don’t hesitate to say so, to turbulent times for the euro zone and for the European Union more widely.”
He cited a euro zone budget for investments, a backstop for European banks, taxation of digital tech giants and the convergence of corporate tax rates as red lines for France.
“These points are for the French government, the president, non-negotiable, they must be present in the Franco-German euro zone roadmap, otherwise the entire euro zone will be weakened.”
Merkel is under pressure at home where her conservatives are divided on how to curb migrant arrivals, and the dispute could further dampen her will to make far-reaching concessions to Macron on the euro zone.
Merkel’s Christian Social Union (CSU) allies agreed to give her two weeks to find a European solution to a dispute over how to limit entries of mainly Middle Eastern and African migrants.
The CSU, anxious about losing votes to a new right-wing party in an October regional election, wants a ban on admitting asylum seekers into Germany who have already registered in another EU country.
Merkel opposes this, saying that such unilateral measures represent a setback to the EU’s Schengen open-border system and any chances of overcoming deep divisions in the bloc.
A senior German government official said that Finance Minister Olaf Scholz and his French counterpart resumed negotiations on euro zone reforms on Tuesday morning after narrowing differences in talks over the weekend. “We must achieve common results that are sustainable,” the official said.
Merkel, keen not to increase burdens on German taxpayers, has indicated that she prefers a euro zone budget to the tune of “tens of billions” instead of Macron’s idea of hundreds of billions of euros for investments.
The two leaders will also have to settle on how to turn the euro zone bailout fund into a European Monetary Fund and complete a banking union Germany says is conditional on clearing non-performing loans from balance sheets. (Additional reporting by Michael Nienaber Editing by Mark Heinrich)