Merkel, Sarkozy outline competitiveness pact
Plan would see eurozone member states agree to closer economic convergence.
Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, France’s president, today called on their eurozone counterparts to sign up to a new pact for closer economic co-ordination.
The two leaders said they wanted to push through reforms that would underpin the strength of the single currency. They presented their plans to establish a “European pact” at today’s European Council (4 February).
“We are determined that 2011 will be a year of new confidence in the euro,” Merkel said. “We want to send out a clear message that as the European Union, as a political union, and as the euro area, we intend to grow together, which is to say closer economic co-ordination.”
Sarkozy said the pact would “strengthen the competitiveness” of the eurozone, and also of other EU member states that wanted to join. “We want to ensure the convergence of different European economies,” he said.
Diplomats said eurozone member states were likely to endorse plans to hold a meeting in Brussels on 4 March, where details of the Franco-German plan would be discussed.
Merkel said she expected Herman Van Rompuy, the president of the European Council, to work on the details of the proposal. Sarkozy said he expected a final endorsement of the plan at the 24-25 March European Council.
Adjustments
The pact includes six elements that members would have to implement within six months. They include scrapping automatic indexation of wages to prices, mutual recognition of diplomas and professional qualifications, and a common corporate tax base.
Fact File
The full text from Angela Merkel and Nicolas Sarkozy outlining their plans for closer economic governance
“We are prepared to take further resolute steps: this pact aims at a long-lasting increase of competitiveness of the sates involved, in order to achieve a stronger economic convergence.
This is to happen on the basis of concrete commitments – more ambitious and binding ones than those already decided by the EU27. We should orient ourselves according to the respective best practice.
We commit ourselves to three quantifiable indicators which are decisive indicators for our national economies’ competitiveness:
1. Indicator to measure price competitiveness (eg, stability of real labour cost, realigning labour cost according to development of productivity);
2. Stability of public finance, from a comprehensive point of view (assessment measure still to fixed, under consideration of explicit and implicit public debt);
3. Minimum rate for investments in research, development, education and infrastructure of x% of gross domestic product (value still to be fixed).
We commit ourselves to let ourselves be evaluated according to these indicators, on the basis of a European Commission report (if necessary with the support of the European Central Bank or the European Systemic Risk Board).
We agree as a first step a programme of six points for more competitiveness of which the measures will have to be implemented nationally in a period of 12 months:
1. Abolition of wage/salary indexation systems;
2. Mutual recognition agreement on education diplomas and vocational qualifications for the promotion of mobility of workers in Europe;
3. Foreseeing the creation of a common assessment basis for corporate income tax;
4. Adjustment of the pension system to the demographic development (ie, average age of retirement);
5. Obligation for all member states to inscribe the debt alert mechanism into their respective constitutions;
6. Establishment of a national crisis management regime for banks.
We will review on a regular basis the implementation of the pact.
We will establish the necessary procedures and adopt the necessary institutional provision in view of the organisation of our work and of our supporting decisions.
We invite the Commission to present within 12 months a report on the implementation of the six measures and to include its recommendations. Furthermore, we will examine the introduction of a sanctions mechanism.
We are convinced that the reinforced coordination of our policies for the competitiveness of the eurozone and the new mechanism for crisis manage will provide for the continuous stability for our currency. Those two new cornerstones of economic and monetary union will provide the balance between our basic principles of responsibility and solidarity.
We contribute herewith to secure the happiness of European unification for future generations.”
Members would also pledge to adjust their pension schemes to take into account demographic developments, introduce debt-alert mechanisms into their constitutions, and create a national crisis management regime for banks.
Merkel said the plan would also include setting benchmarks in certain economic policy areas.
A draft of the summit’s conclusions says that Van Rompuy will be asked to begin consultations with the European Commission and member states on the proposal.
Mark Rutte, the Dutch prime minister said of the pact: “Learning from the best practices, we are making Europe more competitive: [this is] not a race to the bottom but a race to the top.”
Doubts have already been expressed about the added value the pact will bring to existing EU economic governance rules, which are currently being reviewed by the European Parliament. The rules are already meant to boost European competitiveness. The Commission has also raised concerns as to whether the plan would be subject to existing EU treaty rules.