UPDATE 2-France confident of progress towards euro zone budget with Germany


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PARIS (Reuters) – France is optimistic it can reach an agreement with Germany on proposals for a euro zone budget and other reform plans by June, with Finance Minister Bruno Le Maire saying it would be “irresponsible” to delay any longer.

Since coming to power a year ago, Macron has made euro zone reform a priority, but his ability to deliver depends on reaching agreement with Germany on the best way forward and convincing the rest of the euro zone to back the ideas.

“The euro zone cannot withstand economic divergences among its member states. It won’t hold together,” Le Maire told reporters late on Monday.

“I think it’s time to dot the i’s,” he said. “It would be irresponsible to wait any longer. History will judge us harshly.”

An adviser to President Emmanuel Macron affirmed the need for Franco-German agreement and said he was optimistic Berlin and Paris would have a common framework to present to other euro zone leaders ahead of a summit in Brussels on June 28-29.

“Our conversations with Germany lead us to be more confident than not,” the adviser told reporters on Tuesday.

When he first laid out his thinking on reforms, Macron talked about creating a sizeable separate budget for the 19 countries that share the single currency, appointing a single finance minister and converting the bloc’s emergency rescue fund into something more akin to a European monetary fund.

German Chancellor Angela Merkel has praised Macron for his ideas, but poured cold water on some of them, especially those that may result in Germany taking on more risk.

In a speech in Aachen, Germany, last week, Macron urged Merkel to drop her “fetish” for fiscal conservatism, which he suggested was standing in the way of progress.


Even if the two can agree a common position on a euro zone budget, it is likely to start as a small facility, not the several points of GDP Macron suggested last August.

German Finance Minister Olaf Scholz suggested on Tuesday that progress was possible on transforming the European Stability Mechanism, a rescue fund set up during the sovereign debt crisis, into a facility to wind down bad banks.

“We want to develop further towards a European Monetary Fund (not Stability Mechanism). That is important for the future stability of the euro zone,” he said.

That is a different direction to Macron’s proposal, which focuses on turning it into a preventative fund to help member states facing short-term financial difficulties, but does at least indicate a change in its purpose is possible.

As well as the budget issue, the Elysee adviser said France was confident it could reach agreement with Germany on plans for banking union and a stabilisation fund by June.

The proposal for a single euro zone finance minister has effectively been dropped, although Macron maintains it will be necessary in the end as the bloc becomes more integrated.

While it may be possible for Germany and France to agree a joint position, they face an uphill battle to convince other member states that the proposals are worth backing.

The Netherlands, Finland and other countries have expressed reservations about Macron’s plans, saying they go too far and are unnecessary for now.

Reporting by Jean-Baptiste Vey, Yves Clarisse and Michel Rose in Paris and Tom Koerkemeier and Michael Nienaber in Berlin; Writing by Luke Baker; Editing by Kevin Liffey


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