Germany, France push euro-zone policy changes to help stabilize regional economy - by Michael Birnbaum

Two top European leaders are backing plans that would push the countries that use the euro to adopt similar pension, health-care and other policies in an effort to keep their budgets in balance and the regional economy more stable. The effort is being spearheaded by German Chancellor Angela Merkel and was endorsed Friday at a Brussels summit of European leaders by French President Nicolas Sarkozy.

The widely differing economic circumstances in the 17-nation euro zone have led stronger nations such as Germany to come to the rescue of two debt-strapped countries, Greece and Ireland. With bailouts potentially needed in Portugal and Spain this year, Merkel has insisted that further German support come with strings attached, in the form of closer coordination of spending and budgets among the countries that use the common currency.


Under the plan, euro-zone countries would be required to cede some sovereignty about taxation, budgeting and other policies to the European Union and would probably be pressured to keep their deficits in line with the German model. Many economists have said the move would help the euro zone to function more cohesively and to ward off financial crises.


But the likelihood of all the E.U. countries signing onto a proposal that would be politically unpopular at home remained unclear. "At least at first sight, this pact looks like an attempt to make all euro zone countries more German," Carsten Brzeski, a senior economist for ING Bank based in Brussels, said in an analysis note. He said he doubted that some countries would be willing to go along with the changes to their social policies.
Nevertheless, Germany has significant clout. The comprehensive plan would be Germany's price for consenting to boost a $598 billion bailout fund called the European Financial Stability Facility. The fund's true capacity is believed to be around $340 billion, which investors fear would not be enough to sustain both Portugal and Spain were they to need bailouts.


Note EU-Digest: Kudos to Germany and France for taking the lead in tightening the EU economic controls. Each EU-member state that is being a part of the EU must be aware that membership does not only contain benefits, but also responsibilities.


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