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Germany, France Back EU Economic Government

September 2011 - EU & Competition. Legal Developments by Hassans.

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Determined to regain market confidence and to rescue a failing eurozone from the brink, Germany and France have called for a common European 'economic government' to be established, spearheaded by an appointed leader, and for the fiscal and economic policies of eurozone member states to be dovetailed in order to strengthen the euro as a common currency.

Following a bilateral mini-summit meeting in Paris, German Chancellor Angela Merkel and French President Nicolas Sarkozy unveiled details of their proposals regarding better coordination of eurozone economic policy and competitiveness.

In accordance with the plans, eurozone member states will be required to make greater commitments to adhering to the stability and growth pact, and to agree to accept critical comments from the European Commission regarding their budgetary planning. The community will in future have more say regarding the competitiveness of individual partners under the plans. In return, governments shown to be striving for economic stability will be granted targeted support from the European Union structural fund.

A follow-up statement issued by the German government confirms that France now intends to follow Germany's lead by enshrining a debt brake rule for the country's public finances in its constitution. This, the government notes, will serve as a model for all eurozone states.

According to the statement, the finance and economic ministers of both countries will now endeavour to develop proposals for a common corporate tax base by 2013. At international level, both governments will push for the introduction of a financial transactions tax, it continues.

While not ruling out the idea of euro bonds, Merkel and Sarkozy insisted that this would be at the end of the European integration process, not at the beginning. It is imperative at this stage for each eurozone member state to be disciplined and to strive towards a balanced budget and to work towards establishing a joint economic policy, they argued.

Concrete proposals outlining how these ambitious plans are to be achieved are due to be presented to European Council president Hermann van Rompuy shortly. France and Germany have indicated their intention that van Rompuy should assume the role of head of the new European economic government.

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