Franco-German Initiatives and the Next Phase of European Construction

11/22/2018

It is clear that for President Macron and for Chancellor Merkel that a new impulse needs to be generated for European construction.

And they clearly are working together to do this.

Whether this an engine driving effective change for the entire European Union is a different matter; for different initiatives are in play whether from the UK, Northern Europe, or Eastern Europe.

In the past two weeks, we have seen initiatives proposed in two key areas: Euro zone economic development and enhanced Franco-German defense cooperation.

At the Eurogroup Meeting held on November 19th, the German and French Finance Ministers announced a new Eurozone plan.

The plan is the next step from the Meseberg declaration of June and is two pages in length.

The plan combines two impulses – the French impulse to have a budget for the entire eurozone by 2021 with an German impulse that such an effort would be linked directly with the EU’s annual financial framework (MFF) which would ensure that it would be a controllable initiative.

The Eurozone Budget would be part of the EU budget.

This would ensure that it is in coherence with overall EU policies and satisfies budgetary principles and requirements in terms of sound financial management, budgetary control and parliamentary accountability.

The Eurozone budget would primarily be financed by external assigned revenues, possibly including the allocation of tax revenues (such as an FTT according to the French model) and European resources (such as the proposed reform delivery tool).

The assigned revenues would consist of regular contributions by Eurozone Member States, collected and transferred to the EU budget on the basis of an intergovernmental agreement (IGA).

Contracting parties of the IGA would be the Eurozone Member States.

The IGA would provide for a methodology to determine the contributions by each Eurozone Member State and a binding maximum amount. It will provide for a decision procedure on the funding priorities of the Eurozone Budget

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Proposal on the a
rchitecture
of
a
Eurozone
Budget
within the framework of the European Union
In Meseberg, France and Germany
propose
d
establishing a Eurozone B
udget within the framework of the
European Union to promote
competitiveness, convergence and
stabilization in the E
uro area.
Given the
current EU framework and the
division of competences between the EU and Member States, a
Eurozone
Budget
is
only one element
of a set of
different instruments
with
in the
EU
-
framework
promot
ing
competitiveness, convergence and
stabilization in the Euro area including
investment in innovation and
human capital
.
C
oherence
across those
policies
needs to be ensured
.
The fo
llowing considerations outline
a
possible
structure
of such
an instrument
in the framework of the EU
taking into account the principles
of the Meseberg Declaration.
Focus on the
Eurozone
:
T
he scope of application of the i
nstrument would be limited to Eurozone Member
States.
Such a restriction is considered
legally
possible if there is an objective reason
justifying the need
for a specific instrument for the Eurozone.
A justifying reason
is
the need for a high
er
level of convergence
and competitiveness within the Eurozone to ensure
stability of the euro area as a wh
ole.
T
he
range of
options
for
E
urozone Member States
to address convergence and competitiveness
are more limited
since
they
lack
monetary policy and exchange rate adjustment
instruments
at national level
.
In this light,
Euro
area Member States
also
need to comply with more stringent requirements in the context of economic
policy
coordination.
A Eurozone budget would thus be based on the
specific
need
of the Euro area for a
higher level of convergence and competitiveness a
nd
support
relevant
investments
and reforms in
Euro
area Member States.
The Eurozone budget would foster convergence and
incentivize reform
implementation
in particular
by co
-
financing growth
-
enhancing public expenditures such as investments,
research and development, innovation and human capital
.
Moreover, it could also play a stabilising
function in the Eurozone
,
especially
as investments are
prone to be shed in case of pressure on national
public finances
.
Regardless of the
restricted
scope
of application of the instrument, all
27
MS would be entitled to vote
in
the Council
on the legislative proposal
establishing the Eurozone Budget
.
Legal Basis:
A Eurozone Budget instrument within the EU legal framework requires corresponding legal
bases
in the EU Treaties.
In light of its role
to promote competitiveness, convergence and stabilization
including investment in innovation and human capital,
l
egal bases for such an instrument could be Article
175 (3) TFEU
(specific actions outside Structural
Funds)
,
possibly in conjunction with
Article
182 TFEU
(research and technological developmen
t)
and Article
173 TFEU (competitiveness of the industry)
depending on the concrete design
in conjunction with Art 136 (provisions specific to euro area Member
States)
.
This instrument should not be a precedent for the EU’s cohesion policy.
Budgetary framework and r
esources:
The Eurozone B
udget
would be part of the EU b
udget
.
This would
ensur
e that it is in coherence with overall EU policies and satisfies budgetary principles and requirements
in terms of sound financial management, budgetary control and parliamentary accountability.
T
he
Eurozone budget
would
primarily
be
financed by
external
a
ssigned revenues
, possibly
including
the
allocation of tax revenues (such as
an
FTT
according to the French model
) and European resources (such
as the proposed reform delivery tool)
. The assigned revenues would consist of
regular
contributions
by
Eurozone
Member States,
collected
and transferred to the EU b
udget
on the basis of an intergovernmental
agreement (IGA).
Contracting parties of the IGA would be the Eurozone Member States.
The
IGA
would
provide for
a methodology to determine the contributions by ea
ch Eurozone Member State and a binding
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maximum amount.
It
will
provide for a decision procedure on the funding
priorities of the Eurozone Bud
g
e
t
(see Governance)
.
Governance:
As part
of the EU b
udget, the Eurozone B
udget would
be principally subject to the
general
EU b
u
dget rules
and
the framework of its basic act
.
At the same time
,
it would operate
with
the
strategic
guidance
of
the Euro
summit
, which would be operationalized
by the Eurogroup on a yearly basis
. For
example
the
Eurozone Budget could be
executed
under
the
system of shared
management
:
E
urozone
Member States
would prepare
programmes
to implement the Eurozone Budget
.
Programmes w
ould have
a short
timeframe and t
he Eurozone Member States
may request
an amendment of a
programme
whenever deemed appropriate
reflecting investment and reform priorities
.
When proposing the
programmes
to the Commission, the Eurozone Member States would
reflect the strategic decisions
of
the
Eurozone Member States on
Eurozone
funding priorities
which have to be in line with
the
framework of
the legislative act establishing the Eurozone Budget instrument
.
The Commission would
approve
the
programmes
.
Member States and programmes could only receive support by the Eurozone budget if they
pursue policies that are in accordance with their obligations under the
European economic policy
coordination framework, including fiscal rules.
Link with the
MFF
:
The
Eurozone B
udget
would be part of the EU b
udget
and its size would be determined
by the Heads of State and Government.
The
IGA would provide for a multiannual cap of the overall size of
the Eurozone budget, which would be negotiated in
the context of
the MF
F.
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And in the defense field, the French and German governments are moving forward on pooing resources for a new fighter initiative.

The fighter project is called the Future Combat Air System and is designed to field a fighter in the 2040s.

The French Defense Minister meeting with her German counterpart have agreed to launch funding next year for the new combat air project.

Meeting in Brussels where both attended the EU Council ministerial meeting, Parly said she had agreed with her German counterpart Ursula von der Leyen to award two separate contracts for technology demonstrator programs for the new fighter and its engine in mid-2019, at the Paris Air Show in June.

The two nations’ armaments directors also attended the meeting, which according to an official on Parly’s staff “was a useful clarification of the status of the project, and a concrete step forward.”

These contracts will be the first time the two countries have invested any meaningful funds in their future fighter since the project was unexpectedly announced in July 2017 by French President Emmanuel Macron and German Chancellor Angela Merkel.

 http://www.defense-aerospace.com/article-view/feature/197760/france%2C-germany-to-award-first-next_gen-fighter-contract-in-january.html

We will write more about this initiative based in part on participation at the recent International Fighter Conference 2018 held in Berlin, where it was clear that the French and German air forces were working on shaping common perspectives on the way ahead as well as preparing for the two governments to fund joint development next year.

And it is anticipated that Spain will join the FCAS project next year as well.

In short, the French and German governments are shaping some common initiatives to reshape the European landscape.

Yet there are clear challenges to such efforts, whether from within the two nations or in the broader European and global context.

With regard to the Eurozone initiative, one European analyst of this initiative argues that the effort may be unable to succeed given the domestic situations in France and Germany as well as within the Eurozone overall.

As Robert Steenland concludes with regard to the new Eurozone initiative:

With both president Macron and chancellor Merkel losing support domestically, it is questionable whether their plans will succeed. 

Even more, given the opposition by the Hanseatic states, the upcoming European elections and Italy’s political hooliganism. 

Even if some compromise would be reached, it would be too watered down to make a difference in case of a serious economic recession or crisis.

Therefore, the eurozone and EU will face serious political and economic risks that will continue to affect it for a long time to come.

 

The featured graphic is credited to the following source:

https://euobserver.com/opinion/143457