The name’s bonds, Franco-German bonds
A modest German proposal that will find favor at the Elysée palace, and discomfort inside the ruling center-right party in Berlin.
By JANOSCH DELCKER AND NICHOLAS VINOCUR
A senior lawmaker in Angela Merkel’s party has a radical proposal to break a Franco-German deadlock over the eurozone’s future — and it’s capturing the interest of top officials around Emmanuel Macron.
Paris and Berlin broadly agree that Britain’s departure from the EU is a chance for them to deepen European integration. But the two sides remain miles apart on how to achieve that goal, with the German chancellor hesitant to support French calls for a eurozone budget or any pooling of national debts.
That’s where Norbert Röttgen, a former Cabinet minister under Merkel, comes in.
He suggests that Paris and Berlin start issuing joint bonds that could finance a range of common projects, in a step toward closer integration that would require minimum involvement from national legislatures.
In an interview, Röttgen said his proposal was a “small” one that would not require major structural reform in either country, and could be set up quickly.
Röttgen, who was environment minister in 2009-12, chaired the foreign affairs committee in the outgoing Bundestag and kept his seat in September’s election. He’s not expected to get a cabinet post.
His plan is an attempt to overcome Germans’ fears that common eurozone debt would mean picking up the tab for other nations’ profligate spending. It aims to allay such misgivings by limiting the bond issuers to Germany and France — where Macron has committed himself to budget discipline — and by financing specific projects rather than general spending.
The idea of bonds issued by several countries together has been around for a while. Economists and institutions such as the the European Systemic Risk Board, an advisory group to EU institutions that’s headquartered at the European Central Bank, have promoted something called European Safe Bonds, or ESBies. These bonds, which an ESRB working paper says would be “at least as safe as German bunds” and combine different eurozone sovereign debt in one instrument, are championed by people who think a monetary union can’t survive without jointly issued debt. ESBies are pretty close to what Röttgen proposes.
His move reflects a school of thought within Merkel’s party that sees the arrival of the passionately pro-EU Macron in the Elysée palace as a unique opportunity to drive forward the European project. Lawmakers and officials who hold this view, though for now probably still in the minority, are determined to help Macron as much as they can and to persuade their colleagues to do the same.
While French support is a good sign for Röttgen, the toughest opposition he will face is at home, in Germany.
It’s not the first time Röttgen has voiced ideas that are a bit outside the mainstream of his party. To the annoyance of CDU leaders, he co-authored an academic paper published a few weeks after last year’s Brexit referendum that called on the EU to offer Britain a “continental partnership,” something “rather closer than a simple free-trade agreement” — or an invitation for London to “cherry-pick” the bits of the EU it likes and ignore those it doesn’t, as one CDU official said at the time.
He has floated the Franco-German bond idea just as Merkel’s conservative bloc is engaged in exploratory talks on forming a government with the liberal Free Democrats and the Greens, following September’s general election.
“What’s important is that the money we’re coming up with is not being used for the states’ general budgets but for selected purposes in our mutual interest, for example promoting innovation or infrastructure,” said Röttgen.
He added: “It’s about showing that we’re capable and willing to act together and that we, as France and Germany, are able to find trust in the capital markets together … At the same time, we are promoting investment, and above all, we are acceding to French interests by creating better conditions for jobs via investment.”
Naturally, French officials like what they hear.
While Macron has not reacted officially to Röttgen’s suggestion, he’s made proposals along the same lines. During a landmark speech on Europe in late September at Paris’ Sorbonne university, he called for multilateral funding to underwrite a range of projects, including a European innovation agency.
An aide to the president commented that Franco-German bonds were “indeed an interesting path for the future.”
“This fits into what the president was saying, deliberately, in the Sorbonne speech, which he concluded on the financing of common assets,” the aide said. “A lot of people are thinking about this in Germany, along the lines of: If this is to finance innovation, to support growth, it can be much more appealing than past debates on mutualizing debts, which we had in the context of the Greek crisis.”
New Franco-German bonds, the aide pointed out, would circumvent hangups in Berlin about the mutualization of “past debts,” ensuring that Germany would never be on the hook for France’s €2.4 trillion of debt.
Another sign that France is taking Röttgen’s pitch seriously: Officials at the treasury are examining it from a technical standpoint to see whether it’s doable. “These are interesting ideas,” commented a finance ministry official.
While French support is a good sign for Röttgen, the toughest opposition he will face is at home, in Germany. The Bavarian Christian Social Union (CSU), Merkel’s sister party, is adamantly opposed to any proposal that smacks of pooling debt, and so are the Free Democrats, who are angling for control of the finance ministry.
“No matter whether bilateral or multilateral bonds, what’s important is that they don’t impede the principle … that liability and risk must be linked to each other,“ said Alexander Radwan, a member of parliament for the CSU. “At this point, I cannot recognize from [Roettgen’s] proposal how this principle would be upheld.”
“We need to find a compromise … to overcome the standstill in Europe” — Norbert Röttgen
The Bavarians’ greatest concern about Franco-German bonds seems to be that the initiative could open the door for further supra-national pooling of debt.
“It could be understood as the wrong signal,” Radwan said.
Last month, a paper written by the staff of outgoing German Finance Minister Wolfgang Schäuble, and later leaked, carried no mention of any common debt issuance, and suggested that the eurozone would best be strengthened by bolstering the European Stability Mechanism to make it more of watchdog keeping an eye on national budgets.
Röttgen acknowledged that his proposal faces serious obstacles. However, he also warned that parties needed to start compromising, or risk having the eurozone come apart at the seams.
He said fellow CDU members had given him “positive feedback.” And he may take heart from the fact that Merkel reportedly wants to wrest control over EU affairs away from the finance ministry if the Free Democrats, who have also sounded skeptical about Macron’s proposals, take over there.
“We need to find a compromise … to overcome the standstill in Europe,” he said. “A union in which things don’t move anymore will erode at some point and lose its legitimacy.”
He added: “To say that one dogmatically rejects any sort of supranational joint liability — and therefore cannot work with France along those lines — dismisses the reality of a joint currency.”
Florian Eder contributed reporting.