November 21, 2017 / 12:51 PM / in 24 days

Lack of German government puts euro zone integration plans on hold

BRUSSELS (Reuters) - The collapse of talks on a new German government means that the euro zone’s ambitious plans for deeper economic integration could be put on hold, euro zone officials said on Tuesday.

German government coalition talks collapsed on Sunday night as the liberal FDP party pulled out after weeks of “exploratory” talks, plunging the euro zone’s most important economy into political uncertainty and raising the prospect of new elections.

Euro zone leaders are to set a direction for deeper euro zone economic integration at a summit in the middle of December, at which Germany’s input is crucial.

“As long as Germany does not have a clear position, it will by default not agree to anything. Therefore, delay is the most likely option,” one senior euro zone official involved in the euro zone integration talks said.

The summit is to launch six months of work that would lead decisions in June 2018 on whether or not the single currency area should have a budget, a finance minister and a euro zone assembly in the European Parliament.

The deeper integration push, championed by French President Emmanuel Macron, also includes the transformation of the euro zone bailout fund into a European Monetary Fund and the creation of a sovereign insolvency mechanism.

“Things will go on hold until there is a formal acting German government,” a second euro zone official said.

“At this stage I don’t see what steps the leaders could take in December or June for deepening euro zone integration when there is a German government without a mandate,” he said.

Some officials said that a potential delay in the euro zone integration talks was not a big issue because they concerned the future architecture of the Economic and Monetary Union (EMU), now encompassing 19 countries.

“There is nothing that makes new decisions on the EMU especially urgent, so I don’t believe this to be a real problem,” a third senior euro zone official said. “The June deadline can always be moved, if need be,” the official said.

But others noted the initial timing of the talks was to make use of a “window of opportunity” in 2018, when no major euro zone countries, except Italy, or EU institutions had to face elections and were therefore free to focus on euro zone reforms.

If the talks were delayed, decisions on key issues, often sensitive politically, could be pushed back toward 2019 -- a year of elections to the European Parliament, the formation of a new European Commission and choosing new heads of the European Central Bank and the chairman of EU leaders.

An official involved in preparations for the December summit said it would go ahead as planned.

“National elections happening all the time, all over Europe, are no reason to stop our work,” the official said.

But others said they expected the mandate that leaders would give to the Commission for further work on euro zone integration would probably be weaker than it would have otherwise been if no German government is in place by then.

Reporting By Jan Strupczewski; Editing by Richard Balmforth and Catherine Evans

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