EU braces for German-French clash on banks

Divisions between Germany and France were set to dominate the European Union summit which opened on Thursday afternoon, with the aim of shoring economic and monetary union in the face of the eurozone crisis.

EU braces for German-French clash on banks
Photo: DPA

France has demanded a deal be made to establish a banking union by the end of the year, a position Germany opposes. Because of this major difference, Chancellor Angela Merkel and French President Francois Hollande met face-to-face before the other 25 leaders came together.

“This will not be a summit at which we will already take decisions but we will prepare the decisions for December so we have to set the right course,” Merkel said.

“The aim of the (European Union) council is not budgetary union, it’s banking union,” Hollande said on arriving for a pre-summit lunch with Socialist heads of state and government.

“So the only decision we must take, or rather confirm, is the setting up of a banking union by the end of the year, and notably the first stage, which is banking supervision,” he said.

“The best way to proceed is to respect the decisions we have already taken,” Hollande said on arriving at the venue for the summit.

He said the context for the summit was “very tough times in social terms, and economic terms,” but underlined that leaders are no longer under “very tough pressure from the markets.”

Hollande suggested that divergences with Germany were “perhaps for reasons related to the electoral calendar,” with Merkel facing general elections next September.

Merkel and British Prime Minister David Cameron said earlier this week that more work was needed to reach a deal on a European banking union at the two-day summit beginning later Thursday, the first since a June summit agreement.

In Berlin earlier Thursday, Merkel cautioned against rushing into an ineffective supervisory system for European banks.

Instead, she said the emphasis at the summit should be on fiscal discipline by agreeing to give the European Commission’s top finance official the power to veto national budgets of member states.

“We believe, and I say that for the whole government, we could go further by granting the European level real rights to intervene in national budgets” Merkel said.

She also reiterated German opposition to rushing into a new system of policing the banking sector rather than taking the time to ensure that what is created is effective, calling for “quality” over “speed.”

France and Spain called last week for moves towards a banking union to be agreed by the end of the year, a timetable that Germany finds unrealistic.


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The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.