Franco-German economic plan hits opposition

Proposal for ‘competitiveness pact’ meets strong opposition at summit.

A plan proposed by Germany and France for closer economic policy convergence in the eurozone has prompted strong opposition from other countries at a summit in Brussels today.

The “competitiveness pact” proposed by Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, France’s president, is designed to boost the credibility of the euro by bringing closer together national policies on pensions, debt levels and wages policy.

But the proposals ran into wide opposition from leaders from several eurozone countries who objected to parts of the pact.

Yves Leterme, Belgium’s prime minister, said: “I am not against more economic convergence, but we have to have the leave the ways to achieve that to the member states. Every member state has its own accents and traditions and we are not going to allow our social model to be undermined.”

Belgium is opposed to a call to scrap the system of automatic annual pay rises in line with inflation.

Brian Cowen, Ireland’s prime minister, said: “The goal of competitiveness is one that we all share, but clearly there are differences in how we take it forward.” He said he had “underlined the importance” of Ireland’s 12.5% corporate-tax rate to EU leaders.The rate was “an indispensable part of our strategy for return to growth” that was “shared across the political spectrum at home”.

Herman Van Rompuy, president of the European Council who was chairing the summit, said that the EU’s national leaders had agreed to “go further” on closer economic governance but denied that they had discussed “concrete proposals” from France and Germany at the summit.

Six actions

But a draft text of the competitiveness pact leaked to media during the summit calls for eurozone countries to implement six actions by 2012. They include scrapping automatic indexation of wages to prices, mutual recognition of diplomas and professional qualifications, and a common corporate tax base.

Members would also pledge to adjust their pension schemes to take into account demographic developments, introduce debt-alert mechanisms into their constitutions, and create a national crisis management regime for banks.

Van Rompuy said that he and the president of the European Commission had been asked by leaders to consult on ways to go further on economic convergence. He said there would probably be a summit of the leaders of eurozone countries in early March to discuss closer economic convergence.

Jose Manuel Barroso, the European Commission president, said that eurozone members wanted to introduce “a new quality of economic policy co-ordination” on top of plans agreed last year to strengthen economic governance. He said that whatever new mechanisms were agreed would be in line with existing treaties and open to countries that were not members of the eurozone.

Angela Merkel, Germany’s chancellor, said that she had not presented a list of precise proposals. “It was obvious to me that we need general agreement on our determination and our objective, and the principle of having such a pact. It is exactly that point we agreed on,” she said.

No clear determination

Sarkozy said: “There are no decisions yet but we have a clear determination on this pact for economic governance. We will see where it leads. We are not entrenched in our opinions. We don’t agree with everything but that’s not important.

One year ago, a year-and-a-half ago, the words economic governance were banned. I was the only one that said it.”

He said that the pact would not be exclusive. “The idea is that we need a pact to strengthen convergence and competitiveness. First and foremost, this will be carried out by member states in the eurozone, but those that are not members of the euro will be able to participate.”

Sarkozy said that the additional summit would be for leaders from eurozone member states.

The extra summit is expected to be held after the date when a new Irish government takes office on 9 March.

At the summit which was already scheduled for 24-25 March, EU leaders are expected to agree a package of measures to boost confidence in the eurozone. It includes expanding the scope of the eurozone’s rescue fund, finalising details for a permanent crisis mechanism, examining the bailouts for Greece and Ireland, and carrying out stress tests on banks.

Energy and innovation

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At today’s meeting EU leaders agreed to step up efforts to create a single market for energy by 2014 and to boost innovation. They also called on political forces in Egypt to avoid violence and start the transition to a democratic and pluralistic political system with free and fair elections.