French and German leaders outline proposals ahead of EU talks

Joint letter from Nicolas Sarkozy, President of the Republic, and Angela Merkel, Chancellor of Germany, to Herman Van Rompuy, President of the European Council

Paris, 7 December 2011

Dear President Van Rompuy,

To overcome the current crisis, all necessary measures to stabilize the Euro Area as a whole will have to be taken. We are confident that we will succeed.

We are convinced that we need to reinforce the architecture of Economic and Monetary Union going beyond the indispensable measures which are urgently needed to cope with immediate crisis resolution. Those steps need to be taken now without further delay. We consider this as a matter of necessity, credibility and confidence in the future of Economic and Monetary Union.

The current crisis has uncovered the deficiencies in the construction of EMU mercilessly. We need to remedy those deficiencies. To build a lasting Stability and Growth Union which allows us to preserve our unique European model combining economic success and social responsibility, we have to substantially reinforce the foundations of EMU. Alongside the single currency, a strong economic pillar is indispensable, building on enhanced governance to foster fiscal discipline as well as stronger growth and enhanced competitiveness. In order to achieve these objectives, we need a renewed contract between the Euro Area member states. This conviction is the driving-force behind our proposal.

* * *

We need more binding and more ambitious rules and commitments for the Euro Area member states. They should reflect that sharing a single currency means sharing responsibility for the Euro Area as a whole. They should pave the way for a new quality of cooperation and integration within the Euro Area.

We propose that those new rules and commitments should be enshrined in the European Treaties. Alternatively, the member states whose currency is the euro will have to go ahead. In that case, we would ensure that those member states willing and able to do so would be able to join and the European institutions would play an important role. We would also work towards bringing this new agreement into the framework of the European Union as soon as possible.

The main building blocks of the new Stability and Growth Union are:

A strengthened institutional architecture

Euro Area governance needs to be substantially reinforced. We should provide for a more integrated and more efficient institutional set-up without duplicating existing European structures or institutions. This set-up should be based on:

- Regular summits – at least twice a year – of the Euro Area heads of state and government with a permanent president. These summits will provide strategic orientations on the economic and fiscal policies in the Euro Area. The impact of our domestic economic and fiscal policies on the Euro Area should be considered as a matter of common interest, while safeguarding national responsibility.

- During the crisis, the Eurosummit should meet on a monthly basis: each meeting should focus on a precise agenda regarding governance and policies to foster growth, competitiveness and fiscal stability. member states having signed the Euro Plus Pact will be invited to participate to the discussions on issues related to it.

- A ministerial Eurogroup and a reinforced preparatory structure to prepare and implement the decisions taken by the summit and ensuring the current functioning.

This framework will be fully consistent with the EU institutional architecture. We strongly reaffirm our willingness to fully associate the European Commission. The European Parliament and national Parliaments should also be involved in an adequate way.

A comprehensive framework of prevention

It is undoubtedly in the interest of all members of the Stability and Growth Union to detect and correct departures from sound economic and fiscal policies long before they become a threat to the stability of the Euro Area as a whole. Therefore, we need a comprehensive framework on prevention consisting of strengthened coordination, surveillance and enforcement as well as positive incentives, building on current arrangements (new macroeconomic imbalances procedure, EU 2020-Strategy, Euro Plus Pact, a greater focus of structural and cohesion funds on competitiveness etc.) and developing them further.

This framework should comprise in particular:

- The adoption by each Euro Area member state of rules on a balanced budget translating the objectives and requirements of the Stability and Growth Pact into national legislation at constitutional or equivalent level. A new legal provision should set minimum requirements for the national rules on balanced budgets. The European Court of Justice, on request of the European Commission or a Euro Area member state, should have the possibility to verify the transposition in the national legislation.

- Commitment of national Parliaments to take into account recommendations adopted at the European level on the conduct of economic and budgetary policies.

We need to foster growth through greater competitiveness as well as greater convergence of economic policies at least amongst Euro Area member states. To these aims, building on Article 136 and/or on enhanced cooperation, a new common legal framework, fully consistent with the internal market, should be established to allowing for faster progress in specific areas such as:

- Financial regulation;

- Labour markets;

- Convergence and harmonization of corporate tax base and creation of a financial transaction tax;

- Growth supporting policies and more efficient use of European funds in the Euro Area.

A reinforced procedure to enforce sound fiscal policies

To complement the preventive arm of the Stability and Growth Pact and in particular the goal to achieve a structurally balanced budget and ex-ante examination of draft budgets, a new procedure should be established to correct breaches of the 3% deficit of GDP ceiling.

As soon as a member state is recognized to be in breach with the 3% ceiling by the European Commission, there should be automatic consequences unless the Eurogroup, acting by qualified majority, decides otherwise. Exceptional circumstances should be taken into account:

- The obligation for the member state to conclude with the Commission and approved by the Eurogroup by reversed qualified majority on behalf of the other member states, a “European Reform Partnership” specifying the concerned Euro Area member states’ fiscal and structural policy measures to overcome its difficulties and assisting them in those efforts.

- A sequence of interventions of increasing intensity into Euro Area member states’ rights should be allowed as a focussed response to continued infringement. Steps and sanctions proposed or recommended by the Commission should be adopted by the Council unless a qualified majority of the Euro Area member states decides otherwise.

Building on the provisions for a numerical benchmark for debt reduction in the “six-pack” (1/20 rule), the procedure for debt reduction by Euro Area member states with a public debt of more than 60% of GDP needs to be enshrined in the new treaty provisions.

A permanent crisis resolution mechanism

We will accelerate the setting of the permanent intergovernmental European Stability Mechanism which should be effective in 2012 to better address any future threats to the stability of the Euro Area as a whole, including through the risk of contagion for other Euro Area member states, thus assisting them in situations of emergency.

In order to maximize the efficiency of the ESM and its capacity to take decisions, specific super majority rules (85% of signed ECB-Capital) should be implemented.

As far as the private-sector involvement is concerned, the ESM treaty should be revised to make clear that Greece required a unique and exceptional solution. We recall that all other Euro Area member states reaffirm their inflexible determination to honour fully their own individual sovereign signature. A recital in the preamble should clarify that the Euro Area will apply the IMF practice. As agreed, common terms of reference on CACs shall be introduced in national legislations.

* * *

On the occasion of the 50th anniversary of the Treaties of Rome we reiterated solemnly together with all member states of the European Union our resolve to protect the achievements of European unification for the good of future generations. To this end, we committed ourselves to always renewing the political shape of Europe in keeping with the times. It is in this spirit that we submit our proposal to our European partners.

We are convinced that we need to act without delay. We need to take a decision at our next European Council meeting in order to have the new treaty provisions ready by March 2012./.


Statements by Nicolas Sarkozy, President of the Republic, at his joint press conference with Angela Merkel, Chancellor of Germany (excerpts)

Paris, 5 December 2011

THE PRESIDENT – Ladies and gentlemen, thank you for being here. I’d like to tell Chancellor Angela Merkel how happy we are to welcome her once again.

We’ve been working together practically every day: we’ve talked on the telephone, our colleagues are working to constant deadlines. And I think I can say the Franco-German agreement is the most comprehensive one. It will be the subject of a letter Mrs Merkel and I will be addressing to President Van Rompuy on Wednesday, which will detail all the measures we want to see adopted by the Euro Area.

What do we want? Basically, we want to ensure that the deregulation which led to the Euro Area’s current situation can’t recur under any circumstances. That’s Germany and France’s wish. What happened must no longer be able to happen.

To that end, we want a new treaty – to make all the European peoples who belong to Europe and the Euro Area realize that things can no longer continue flourishing as they have until today.

Our preference is for a treaty among all the 27, so that no one feels excluded from the Franco-German move, but we’re entirely prepared for a treaty among 17, open to all those states that would like to join us. The treaty would include the following elements – I’ll make do with mentioning their main headings – and the letter we’ll send President Van Rompuy will contain more detail of it. After he’s received it, we’ll make it public:

First of all, we want automatic sanctions in the event of non-compliance with the rule of a deficit lower than 3%. And we want only a qualified majority to be able to oppose it – that is, the opposite of the situation today; what’s called a reverse majority.

The second thing – which we proposed on 21 July – is that we want a golden rule, strengthened and harmonized at European level, so that all the budgets of the 17 include a constitutional measure enabling national constitutional courts to verify that the national budget is geared to a return to equilibrium.

Thirdly, we agreed on the issue of the involvement of the private sector, and said that what happened in Greece won’t happen again; from now on we’ll get in line with the jurisprudence on the subject, which is that of the IMF.

Fourthly, we want [the creation of] the European Stability Mechanism to be brought forward from 2013 to 2012, and internally we want decisions to be able to be taken not unanimously but by a qualified majority, which we estimate at being around 85%.

Fifthly, we want the heads of state and government who comprise the Euro Area’s economic government to meet every month for as long as the crisis lasts, and each of these meetings will have to have a clear agenda focusing on the need to stimulate growth in the Euro Area.

Finally, regarding the ECB – and this shows the depth of our discussion – we agreed to confirm what we declared with Mario Monti at the Strasbourg summit: confidence in the ECB, the independence of the ECB, and refraining from any positive or negative comments on its action.

There you are. I’ll finish by saying that, in this extremely troubled period, in the face of this extaordinarily grave crisis, France thinks more than ever that her alliance and understanding with Germany and the Chancellor are absolutely essential strategic points.

Germany and France are two big economies of Europe. Taking the risk of us diverging means taking the risk of Europe and the euro exploding. The crisis gives us an extra duty of unity. We’re moving together towards the same Europe, a Europe of governments and a Europe that won’t begin the mistakes of the past again, where there has been too much irresponsibility, where too many decisions have been taken without all the lessons being learned. Today, at the height of the crisis, we must make up for all those delays that have accumulated.

Finally, I want to make one last point: we, Germany and France, entirely agree that eurobonds are in no way a solution to the crisis. In no way! Moreover, I want to say to French people: what an odd idea it would be to pool the debt, because Germany and France would pay for the others’ debt without being able to control the issuing of the others’ debt! And how do you persuade the others to make the efforts we ourselves are currently making if we pool the debts right now? All that makes barely any sense. (…)

Q. – Madam Chancellor, Mr President, you’ve travelled a long way since your walk on the beach in Deauville. Now you’re talking about automatic sanctions: couldn’t the European Court of Justice also take a decision on what’s wrong with regard to deficits, if need be? (…)

THE PRESIDENT – You know, when you choose – as the Chancellor and I have chosen – to move towards convergence and strengthening the unity between Germany and France, it’s a strategic choice, it’s an historic choice, because we both think that what’s most invaluable about what our predecessors left us is the friendship between France and Germany. There were 70 years of bloody confrontation between our countries, and for 70 years there has been peace. What do we want the future to be? We want that future to involve convergence and the maintenance of peace.

To that end, each must learn to understand the other, to accept the other’s differences and create the conditions for an agreement, with compromises that each gets something from. What’s our aim? Not for Germany to beat France or France to beat Germany. Our aim is for the euro and Europe to emerge stronger, for us to get back to growth, for there to be fewer unemployed people. And for that reason we’ve decided to travel a long way together, not just since Deauville.

Now, on the European Court of Justice things are quite clear. As the Chancellor very rightly said, the European Court of Justice won’t be able to cancel national budgets. That’s not possible. However, we hope each constitution in each of the 17 Euro Area countries will adopt a strict golden rule that is directed towards equilibrium. Besides, can you ask anything else of a budget than to move towards reducing deficits and debt?

And it’s the European Court of Justice which will be able, if need be, to check whether each country’s golden rule is in line with the treaty which will be signed by the 17. That’s the agreement we’ve come up with. It seems to me to be completely in line with the European institutions, respect for sovereignty, respect for parliaments’ prerogatives and effectiveness.

(…) The goal the Chancellor and I have is for the whole agreement to have been negotiated and concluded between the 17 Euro Area members in March, because we have to move quickly, and so the ratifications will take place after France’s two important political landmarks: the presidential and general elections. At that point we’ll see how to resolve the problems. (…)

Q. – As has just been pointed out, private-sector involvement in the ESM will no longer be called upon in the future, yet this had been perceived as fair in Germany, i.e. that the banks also take on a share of the risk. How are you now going to explain that this fairness will disappear in the future? (…)

THE PRESIDENT – The Chancellor and I always said that Greece was a special case. And I don’t mean to offend anyone by saying that you can’t compare a big economy such as the Italian or Spanish economy with what happened in Greece. And what the Chancellor and I want is to say to investors all over the world that in Europe the rule is that we repay our debts, we reduce our deficits, we regain the path of growth and we repay our debts. This is part and parcel of the renewed confidence Chancellor Merkel was calling for. (…)

Q. – A quick question to clarify the timetable. Are you hoping to get a sort of agreement in principle from your partners as early as the European Council at the end of the week? Moreover, you talked about there being a new treaty in March; how long are you giving yourself to decide, if necessary, that getting an agreement from the 27 isn’t possible and that you’ll therefore have to move on to negotiations between the 17?

THE PRESIDENT – As early as Thursday. The timetable, for us, is very simple: on Wednesday we’re writing to President Van Rompuy, on Thursday and Friday we intend to present all our proposals and we’ll then seek everyone’s views and see if there’s any reason to opt for a treaty decided by the 27 or a treaty decided by the 17. Our wish is to make swifter progress on restoring confidence in the euro and Euro Area. There you are, we don’t have time, we’re conscious of how serious the situation is and of the responsibilities we shoulder. So things are clear: [we must act] as soon as is possible on the basis of this agreement between Germany and France, which is open to others./.

Published on 08/12/2011

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