Verhofstadt to Merkel: Create “state authority” to back euro

ALDE leader Guy Verhofstadt (Belgium) urged German Chancellor Angela Merkel to take steps to reduce the high interest rates paid by member states, such as Italy or Spain. In his mind that means creating a “state authority” to back the single currency and implies creating a European bond market.

A “worked up” (Merkel) Verhofstadt faced the chancellor. The ALDE leader considers that the EU will only be able to turn the corner of the crisis when the high bond yields paid by certain member states are brought down. The United States and Japan have higher indebtedness levels relative to output than the Union as a whole, yet their interest rates are lower, he underlined. The single reason for this is the “absence of a state authority behind the euro,” he considers. “The euro is unsustainable and can disappear if we don’t create a real European state,” he told Merkel in front of an enlarged Conference of Group Presidents, on 7 November. Verhofstadt therefore called for a true European government, a real European budget, a real treasury, a true democracy and also a European bond market. In his opinion, this latter building block is “the only way to solve the problem of too high interest rates in Europe”. The former Belgian prime minister said that Parliament will stand firm on this request. He warned the German chancellor that there would be no agreement on the ‘two pack’ aimed at further boosting economic governance “if there is no redemption fund inside the new package”. S&D leader Hannes Swoboda (Austria) also insisted on the need for this type of partial mutualisation of debt as suggested by the German council of economic experts earlier this year whereby eurozone states’ debt above the 60% ceiling on a certain date be transferred into a fund for which all are jointly liable for approximately 25 years.

Unabashed, Merkel reminded Verhofstadt that the EU has no state authority due to the failure of the Constitutional Treaty, which was rejected by both the French and Dutch citizens. Hinting at a political union, she is convinced that the European Commission “will become a European government one day,” that “the Council will become second chamber” and that the European Parliament “will take European responsibilities”. “We must give people a little bit more time so that they can come with us,” she cautioned, however.

The German chancellor also underlined that the introduction of the euro was followed by artificially low interest rates in certain countries. This then led to lagging competitiveness in these member states, which now has to be corrected. Merkel believes in any case that a redemption fund “doesn’t help us in the current situation”. The focus should be on reducing deficits first, she said.

EPP leader Joseph Daul (France) placed the emphasis on the need for a 2014-2020 multiannual financial framework (MFF) “at the level of our ambitions” in order to exit the crisis. He called for a debate on the funding of the EU budget “without taboos”.

A visit by the German chancellor to the EP’s plenary in Strasbourg is scheduled for 2013.  EuroPolitics