EU Leaders Set March Rendezvous as They Seek New Deal on Euro

(Bloomberg) -- European Union leaders agreed to reconvene in March with the aim of making progress on how to shore up the euro area, as the bloc’s two largest economies signaled they were ready to step up work toward an agreement to overhaul the institutions of the single currency.

EU leaders held a summit in Brussels on Friday to discuss how to deepen the integration of their economies on the heels of improving finances, even as differences between the bloc’s members have raised doubts about whether the push to reform the euro area is feasible over the coming months.

Their gathering -- which didn’t include the U.K. -- came as top EU officials and politicians have stepped up calls over the past year to strengthen the euro area in order to ensure it can better withstand future financial shocks. The effort got an extra push with the election of President Emmanuel Macron in France, a staunch advocate of closer integration in the currency bloc, though the lack of a functioning coalition in Germany and the absence of market pressure have stalled progress.

Despite ongoing coalition talks, and Berlin’s tougher stance toward many of Macron’s plans, German Chancellor Angela Merkel signaled Friday that she would work to find common ground with her French counterpart on the future of the single currency.

“On the question whether we will find a convergence, I can only say that I want to. And if there is a will, there is also a way, as we say in Germany,’’ Merkel said in a joint press conference with Macron after the Brussels summit. “We will find a common solution, because this will also be necessary for Europe.’’

Joint Position

The German leader stressed her desire to focus on reforms to boost competitiveness and said Paris and Berlin will seek a common position by March -- even as it is unclear whether she will have successfully formed a governing coalition by then.

Her comments could ease concerns in Brussels and elsewhere that a prolonged political vacuum in Berlin could strip the euro area of its key decision-making member, and stem efforts to strike a deal on the future of the euro in the coming months.

The March summit is “key” for the euro-area’s future, Macron said.

Faced with a narrowing window of opportunity to push ahead with reforms, European Council President Donald Tusk tasked leaders to reach an agreement on at least some of these issues by June. In order to do so, however, the bloc’s members will have to agree on a set of controversial outstanding reforms, including the completion of the post-crisis banking rules, the creation of a European Monetary Fund and the possibility of a dedicated euro-area budget and finance minister.

While consensus has emerged on the need to take further steps on these areas, significant disagreements persist among key capitals, raising doubts about the bloc’s capacity to reach a compromise on everything by June.

EU officials say that some areas, such as the completion of outstanding banking reforms, are low-hanging fruit and they expect progress on them to pick up over the coming months.

“There is agreement that we are aiming for a banking union. The finance ministers will here determine the necessary steps,” Merkel said.

Still, on substance, there is little evidence that countries are ready to let go of their longstanding positions in order to move closer to a compromise, and remain split on key issues such as the need for greater risk sharing among the bloc.

Main Disagreements

Countries including Germany and Netherlands are loathe to agree to any steps that they fear could put their taxpayers on the hook for problems lurking on bank balance sheets in other countries unless they take further measures to reduce risks.

Meanwhile, opinions on whether the bloc should have a common budget to support economies in a downturn differ, while consensus is far from achieved on what exactly such a budget would be used for and how it could be financed.

“Sound fiscal policies and a competitive economy make the euro stronger. Running the money press won’t,” Dutch Prime Minister Mark Rutte told reporters after the end of the first day of the leaders’ summit. “I am not in favor of one big European shock absorption fund but 19 smaller ones. These being the countries themselves and their ability to deal with crises individually,” he said.

©2017 Bloomberg L.P.