Europe Doesn’t Want Germany’s Rules

Many eurozone countries balked at proposals to enact economic reform along German lines for the whole of the currency union.

Many eurozone members balked at a joint Franco-German proposal to eliminate policy differences and enhance European competitiveness at a summit of government leaders in Brussels this weekend.

Germany was long hesitant to foster economic union, fearful that it might introduce welfare provisions after the French example in all of the eurozone. Fiscal crises in Greece and Ireland however have convinced the more conservative Germans that they can’t have a currency union without a higher degree of harmony in economic policy.

Both France and Germany advocate raising retirement ages across the eurozone, abolishing the indexation of wages to inflation, harmonizing corporate tax rates and instituting a “debt brake” that limits the ability of national governments to borrow on financial markets.

The proposals are a reflection of both countries’ strong commitment to preserving the euro. France and Germany are the largest economies in Europe and their leaders have repeatedly pushed for European treaty reform that would semi-automatically trigger sanctions for countries that plunge too deep into the red — despite resistance from deficit countries in the Mediterranean to such schemes.

Those southern states need to push through economic reforms in order to boost competitiveness — lowering tax rates, decreasing labor costs and preparing their pension and welfare regimes for the twenty-first century. They are already heavily indebted however and bracing for spending cuts, prompting mass labor demonstrations in Greece, Italy and Spain last year.

During unusually heated debates in Brussels, Belgium, Portugal, Luxembourg and Spain objected to the wage indexation proposal while Austria criticized plans to raise the pension age across the continent. Austrians take wide advantage of early retirement provisions, and, along with France and Luxembourg, the country has one of the lowest effective retirement ages in the eurozone.

Countries outside of the currency union moreover, notably Poland, were afraid that the German reform effort could undermine the single market, further separating those members that carry the euro from those that do not.

European Council President Herman Van Rompuy agreed that all 27 European Union members should be consulted before major economic reforms are enacted. Two additional summits of government leaders are scheduled for March.