On June 22 (tomorrow), the 4 leaders of Germany, France, Italy and Spain will meet in Rome to discuss about the current problems in the eurozone. Because the summit is informal, we don’t expect major announcements afterward. However, we can easily guess what’s on the agenda. Here’s a list of topics that the 4 could debate on:
- the release of Eurobonds – France, Italy and Spain push for the idea while Germany (Merkel’s government) is wary of it. This joint debt liability would materialize in about 10 years…
- implementing a financial transaction tax – this has both economic and political goals. While the UK (and others) are against the idea, the 4 countries support it so an agreement is likely at the eurozone level. However, tax revenues cannot be expected before 2015…
- the creation of a banking union – this needs more political integration and while Germany supports the idea, France is uncomfortable with delegating power to Brussels
- the status of the European Stability Mechanism – while Paris would like to give the ESM a banking license, enabling it to borrow from the ECB, Germany fears that this would allow central banks to finance governments indirectly
- euro-bills – the short term version of Eurobonds, having a predetermined limit and holding a short term-maturity. Countries would need to apply fiscal reforms to qualify for these bonds and they’d be allowed to issue them only up to a certain percentage of their gross national product
- redemption fund – countries would jointly guarantee the national debt that is above 60% of the GDP. Countries should, however avoid economic contraction and run primary surpluses to join in and get help.
While all good ideas, they don’t do anything to resolve the differences between France’s stimulus driven plans and Germany’s pleas for fiscal responsibility. Italy and Spain are now openly supporting French proposals after not succeeding to reduce market pressure using German methods (spending cuts and raising taxes).
But this is what makes this summit important, even if informal: it is the first time that France, Italy and Spain present an united front against Germany. It’s definitely a meeting worth following, also considering Merkel’s speech in Parliament on June 14.