Merkel Pushes Euro Reform Saying ECB Policy Won't Be Forever

(Bloomberg) -- German Chancellor Angela Merkel said governments must step up efforts to integrate the euro area because the European Central Bank’s expansive monetary policy won’t last forever.

“The global view of joint currency unions states that you need to have some kind of element of last resort,” Merkel said in a speech to the lower house of parliament in Berlin on Wednesday.

The chancellor’s warning reflects pressure on Europe’s biggest economies, notably Germany and France, to make progress with joint policies as the ECB moves closer to phasing out asset purchases and some policy makers embrace expectations for possible interest-rate increases in mid-2019.

Merkel gave hints at what elements of the euro area’s machinery could be overhauled as she and French President Emmanuel Macron pledge to present a joint initiative for a European Union summit on June 28-29. While the two have differed on policy, Merkel said leaders must move ahead with convergence as the single currency moves beyond its existential crisis at the beginning of the decade.

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Even though the 19-member euro area is benefiting from economic growth and rising employment, “we can’t be satisfied with that, because we all know at the moment that the European Central Bank is running a policy that won’t continue like this indefinitely,” the chancellor said.

To enhance euro-area integration, EU leaders must develop the European Stability Mechanism bailout fund into a European monetary fund, providing a “common backstop” once financial risks in the region are reduced, Merkel said.

While a euro-area investment budget must be considered alongside longer-term EU spending plans, it would “not be easy” to pay “significantly more into the EU budget and significantly more in the euro budget,” Merkel said.

German Politics

Merkel is seeking to project a joint sense of urgency with Macron while facing resistance within her party bloc and from parts of the opposition. Unmentioned in the chancellor’s speech was euro-area deposit insurance, a project she said in April was for the “more distant future.”

Fiscal conservatives in Merkel’s Christian Democratic-led bloc have rejected some of the French proposals, including a euro-area budget and a joint finance minister. They’ve also called for strict parliamentary oversight of any European Monetary Fund that emerges from the negotiations.

©2018 Bloomberg L.P.

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