Merkel Sees New European Bailout Tool to Handle Future Crises

(Bloomberg) -- German Chancellor Angela Merkel stressed the need for a new euro-area bailout mechanism to prepare for “any crisis situation” and reduce dependence on the International Monetary Fund.

Merkel’s comments, made in a speech in Berlin on Monday, build on a newspaper interview published the previous day in which she laid out her response to French President Emmanuel Macron’s proposals to reform and strengthen the single currency region.

A European Monetary Fund should be able to grant 30-year loans tied to structural reforms and give 5-year loans to states hit by external shocks, she said. A separate investment fund is necessary to help “weaker” nations as “a common currency with completely different social conditions and levels of prosperity is not good,” she said.

The proposals, to be presented at an EU leaders’ summit later this month, were welcomed by the European Commission, the EU’s executive body. Merkel called for reform negotiations to be concluded before the 2019 European elections.

Merkel’s proposals, while more cautious than those of Macron, are constrained by fiscal conservatives in her Christian Democrat-led bloc, who reject outright some French plans including a separate euro-area budget and a joint finance minister.

Euro reform efforts are also focusing on completing the so-called banking union, with the establishment of a backstop for a fund to help wind down failed banks and a common deposit insurance scheme. Countries such as the Netherlands oppose deposit insurance citing a reluctance to put their taxpayers on the hook for failing banks in other countries.

©2018 Bloomberg L.P.