February 8, 2018 / 2:17 PM / 9 months ago

EU hears and likes change of tune from Germany

BRUSSELS (Reuters) - The prospect of a German government that talks big on Europe and opens its pocketbook has thrilled many of its EU allies, even if they are uncertain just how far Chancellor Angela Merkel’s new grand coalition will go.

Christian Democratic Union (CDU) leader and German Chancellor Angela Merkel, Christian Social Union (CSU) leader Horst Seehofer and Social Democratic Party (SPD) leader Martin Schulz pose after a statement on coalition talks to form a new coalition government in Berlin, Germany, February 7, 2018. REUTERS/Hannibal Hanschke

“Fully in line with this new sense of a breakthrough moment for Europe,” was how European Commission President Jean-Claude Juncker rated Wednesday’s deal, in which Merkel risked angering conservative allies to govern again with the Social Democrats.

One senior EU official called it “the most pro-European approach since the Kohl era”, referring to the 1980s and 90s when Chancellor Helumt Kohl drove a dramatic deepening in EU unity in alliance with French President Francois Mitterrand.

There was little sign, Juncker said, that Berlin would now shun proposals by him and new French President Emmanuel Macron to forge ahead with deeper integration of the euro zone. It is unclear, though, how far Germany’s parliament and establishment will allow the coalition to stray from the austere scepticism of former finance minister Wolfgang Schaeuble.

French Finance Minister Bruno Le Maire made a similar point as he pushed for Berlin to agree to Paris’s ideas of a common budget and finance minister for the euro zone and coordination on sensitive national economic issues like taxation:

“There are things in the coalition agreement that are very positive and correspond with what the president has always defended on the euro zone,” he said on Thursday of Macron’s ideas. “We have a real possibility of convergence with Germany.”

EU chairman Donald Tusk welcomed the “good news” from Berlin and made a link between German coalition talks and broader EU policies.

“Now it is high time to build an inclusive pan-European Grand Coalition for an ambitious budget, wise agreement on migration and a better Eurozone,” he said on Twitter.

Peter Kazimir, the outspoken finance minister of euro zone member Slovakia, also called the deal “good news for Europe and the euro zone” and welcomed fellow social democrat Olaf Scholz to the post long occupied by Schaeuble.

“We’ll be in a good position to make essential changes in the architecture of the euro zone,” Kazimir said. “It has its weak spots and we need the courage to deal with them.”

Senior euro zone officials told Reuters the most likely early moves would come in closer integration of banking supervision - for example, in reducing German resistance to an EU deposit insurance scheme. They also see a broader role, cited in the coalition pact, for a revamped European Stability Mechanism, the bailout fund which has rescued several bankrupt governments.

NO LONGER TABOO?

“The signal this coalition treaty sends ... is that Germany is willing ... to talk about things that seemed to be a taboo topic until last September, and it’s willing to be a co-pilot together with France and all the others in driving this debate to some successful end,” one euro zone official told Reuters.

Less clear was that there was a new German enthusiasm for ideas dear to Paris and Brussels such as a special euro zone budget and a finance minister for the 19-member group.

The German parliament and constitutional judges may continue to pose obstacles to agreement with France and the Commission on developments that many German voters fear could mean them paying the debts of imprudent fellow Europeans.

The coalition deal took care to repeat “Schaeuble’s mantra” about the need for fiscal responsibility in member states.

But, the EU official said, the avowed willingness to pay more into EU budgets was an important signal after the Schaeuble years: “You have a change from a policy of closed wallets to a policy of a wallet that is at least open a little bit,” he said.

A second euro zone official said fellow Europeans should see this as “good news” given that both coalition parties did poorly in Germany’s September election, while eurosceptic populists did well using campaign slogans reflecting anger at bailing out foreign states.

Le Maire said France was prepared to accept measures that would reduce the risk of bad loans in countries like Italy, but that Germany also had to make concessions: “I’m calling on our German friends to understand that there won’t be banking union without a minimum of solidarity between euro zone states.”

Aside from the euro zone issues, Juncker praised the coalition deal for anchoring willingness on the part of Europe’s paymaster to contribute more to the EU budget as fellow major contributor Britain leaves, and to reach out to Poland and other eastern states to ease divisions.

Writing by Alastair Macdonald; editing by Andrew Roche

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