Why differences are hard to patch up?

15:23, June 18, 2010      

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Germany and France on Monday, June 14, worked to mend fences on policy splits, agreeing that the European Union (EU) needs economic governance by all 27 member states, not just euro nations, as Paris. Germany Chancellor Angela Markel and French President Nicolas Sarkozy held a new round of negotiations in Berlin during the day on how to cope with the financial crisis.

This is the first-ever summit Germany and France have held after they reportedly got increasingly difficult or tough in their coordinative negotiation. Contradictions and disparities still exist in spite of significant headway made in their talks.

First of all, there is the issue of establishing a European "economic government" with the competence to control the member states' budget at the European level. President Sarkozy has long favored establishing an economic administrative arm for the 16-nation euro zone with a powerful secretariat, which would work in coordination with the European Central Bank (ECB) to formulate the fiscal policy. But Germany insists that there would essentially be a new power center within the EU, and that could lead to a shift in German economic policy.

On the June 14 summit, France agreed to Chancellor Merkel's plan on "economic governance" for all 27-member states, so as to avert the market splits. Germany agreed to call a special meeting of 16 euro zone countries for economic policy coordination when necessary. But this is only a tentative proposal on the mechanism coordination, which has evolved a host of uncertain or undefined factors on how to put it into operation.

Second, on the Stability and Growth Pact (SGP), which is an agreement between the 16 members of the EU that take part in the euro zone, both Germany and France agreed to a fine for the country whose budget deficit exceeds 3 percent of GDP, and use the ultimate power for a state bankruptcy. France, however, regards this policy as too tough. Germany inclined to amend the SGP but France flatly rejected it.

At a recent meeting of a special panel of the European Council chaired by Herman Van Rompuy, president of the European Council, France's theory on rapid efficiency was passed, but most of Germany's proposals for rigid governance were not accepted.
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