World Economy

Juncker’s EU Budget Plan Risks Turf War in Euroland

Juncker’s EU Budget Plan Risks Turf War in EurolandJuncker’s EU Budget Plan Risks Turf War in Euroland

Jean-Claude Juncker risks stirring up a hornets’ nest by including a small eurozone-focused budget in his blueprint for the EU’s long-term finances.

The European Commission president is not only jumping the gun—and meddling—in the tough negotiations currently under way between France, Germany and other governments on consolidating the EU’s monetary union, but he is also staking the commission’s claim on future tools and procedures that some governments would prefer to keep out of Brussels’ way, reported.

Just because Juncker has been thoughtful enough to include, in his proposals for the next Multiannual Financial Framework, something that Germany may like and another thing that the French could favor doesn’t mean that his plans will see the light of day.

What will be music to Berlin’s ears is Juncker’s proposal to launch a “Reform Support Program” within the overall EU budget to provide financial and technical assistance to eurozone countries. Germany has long hinted that one possible way it could agree to pooling at least some resources would be to set up such an instrument—that is, financial aid conditional on the recipient country undertaking serious reforms.

What the French will like, meanwhile, is the commission’s proposal to set up a stabilization fund to deal with economic or financial shocks. Economists have long argued that the eurozone is badly lacking a tool to face asymmetric shocks—unexpected economic developments that hit one particular country or region.

To soothe longstanding German fears that such an initiative may lead to unconditional fiscal transfers, the commission uses the cover of an “investment” facility—which would offer a type of spending that passes for something more serious than the funding of current expenses. On two fronts, though, the commission is laying the ground for a turf war, in line with what it did in its own eurozone reform proposals presented in December.

The first is on how a eurozone budget should operate: Juncker has long made it clear that, contrary to the ideas of French President Emmanuel Macron, he thinks a future budget for the 19-country single currency bloc should be part of the EU’s.

“We do not need parallel structures. We do not need a budget for the euroland but a strong euro area budget line within the EU budget,” Juncker said in his State of the Union address in September. The second aspect of a possible turf war is its bureaucratic component. The commission and member governments disagree on who should be tasked with managing the potential future eurozone budget.

France and Germany so far seem to assume that the eurozone’s bailout fund, the European Stability Mechanism (ESM), which already manages the money lent to countries bailed out during the euro crisis (Greece, Ireland, Portugal, Cyprus and Spain), would be in charge of managing the budget, whether in the form of reform support or rainy day funds.

Germany has even pushed hard for the ESM to monitor member countries’ compliance with the EU’s fiscal discipline rules, a task that is for now for the commission.


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