21 March 2019, Belgium, Brussels: French President Emmanuel Macron arrives to attend the first day of the EU leaders summit, at which British Prime Minister Theresa May is to request a short extension of Article 50. Photo: Thierry Roge/belga/dpa
Emmanuel Macron wants to create a common budget for the eurozone

EU finance ministers will discuss ways to advance Emmanuel Macron’s plan to create a common budget for the eurozone, after pushback from some member states resulted in a significant scaling down of the French president’s original ambition.

On Friday, EU finance ministers are meeting in Bucharest, where they will seek to advance work on the budget ahead of a June deadline set by EU leaders for the main elements of the project to be settled. The talks will focus on governance of the planned fund, one of a number of sensitive issues still open.

The idea has been championed by Mr Macron as the centrepiece of his vision of a more integrated eurozone. But since receiving broad backing from Germany’s Angela Merkel for the plans in 2018, the size and goals of the budget have been limited to the point that some diplomats warn that it could have minimal practical impact.

Valdis Dombrovskis, the European Commission’s vice-president for the euro, told the Financial Times this week that ways needed to be explored to ensure the tool “has value added as a euro area investment instrument” and does not duplicate existing EU funding programmes.

Since being elected in 2017, Mr Macron has pushed for a budget to narrow regional differences in economic performance and equip the currency bloc with the means to weather financial storms by providing stabilisation support.

But the projected size of the budget has been drastically scaled back from Mr Macron’s proposal of a fund totalling several percentage points of the eurozone’s gross domestic product.

Diplomats predict that the final number, which will be settled as part of negotiations on the EU’s next seven-year budget, will be in the tens of billions of euros. “Stabilisation” has also been removed as one of its goals, after countries led by the Netherlands objected to their taxpayers being placed on the hook for problems in other countries.

EU27 leaders agreed in December that the budget’s remit would be limited to supporting “economic convergence and competitiveness”. The plans under discussion by governments set twin goals for the budget: giving countries financial incentives to carry out growth-boosting reforms, such as changes to the tax system, and providing support for investment projects.

Mr Dombrovskis said that one avenue being explored was to make the budget “counter cyclical”, meaning that countries could access money more easily in bad times.

This could be done by temporarily easing rules requiring governments to stump up a minimum amount of national cash if they want to get European support for an investment project — a technique already used with Greece during the sovereign debt crisis. It is designed to keep public investment levels, which usually fall in a crisis, stable during an economy’s downturn.

The countercyclical idea is backed by Paris, which sees it as a way to recapture some of the spirit of its original plans. But Mr Dombrovskis said it had already led to complaints from reluctant capitals “that counter-cyclicality is stabilisation by the back door”.

“By design it’s different from stabilisation”, he said. “But it’s still macroeconomically meaningful.”

That is not the only difficulty in the discussions to come. Paris and Berlin are also trying to win support for an international treaty that would allow national governments to make additional contributions to the budget or funnel in receipts from future pan-EU taxes. But this has raised hackles among ministers wary of having to ask their parliaments to ratify a treaty on further eurozone integration. The Hague and Helsinki are strongly opposed, Brussels officials said.

Paris has also championed the treaty to enshrine the principle that the 19 euro area governments should collectively oversee how the budget is spent.

Other hurdles include how to deal with the sensitivities of countries outside the currency bloc, given that the eurozone plans draw on funding from the wider EU budget.

“What non-euro countries are clearly saying is that they are not ready to pay for an instrument which they cannot access, which is probably logical,” Mr Dombrovskis said. “So we need to find the right balance.”

Capitals fear that some of the toughest negotiations are still to come. “We will be up all night in June,” said one EU diplomat.

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