Insight
Macron’s plans for the euro by Charles Grant 23 February 2018
Decision-makers in Paris sense a golden opportunity to reform the eurozone. They are optimistic that, notwithstanding political uncertainty in Germany, some key reforms can begin this year. When Emmanuel Macron was François Hollande’s economic adviser, and later his minister for economy, he had strong views on the reforms required for the eurozone to flourish. He called for elements of a transfer union, risk-sharing and demand management at eurozone level. He has not changed his mind and believes that the time is propitious for reform: eurozone economies are growing nicely; no major country (Italy excepted) faces an election in the near future; he retains his aura of success; and Angela Merkel remains a sympathetic and (at least for now) fairly authoritative figure in Berlin. Assuming that Germany has a government soon, the French hope for a Franco-German letter in March. That would lead to the Euro Group (the eurozone finance ministers) drawing up a roadmap for reform in June. Stage one would involve the completion of the banking union and get underway this year. Later stages, requiring more time, would deal with the transformation of the European Stability Mechanism (ESM), a bail-out fund, into a European Monetary Fund (EMF), the establishment of a eurozone budget and institutional reforms such as the creation of a eurozone finance minister. Several French officials compare this roadmap to the 1989 ‘Delors Plan’ with its three-stage progression to economic and monetary union. Evidently, none of this can happen without the accord of Germany, which has very different views on the economics of the euro. Backed by countries like Austria, Finland and the Netherlands, Germany opposes the mutualisation of eurozone sovereign debts and any kind of transfer union. It wants stricter compliance with budgetary rules and argues that countries should not be bailed out unless holders of their sovereign bonds take losses; then markets would be a more effective constraint on profligate sovereigns. Policy-makers in Paris are not naïve about what the Germans will sign up to. They like the rather ‘French’ tone of the Christian Democrat-Social Democrat coalition agreement, which calls for an EMF “anchored CER INSIGHT: Macron’s plans for the euro 23 February 2018
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