Eurozone Leaders Unite On Growth Pact, Back FTT

by Ulrika Lomas, Tax-News.com, Brussels

26 June 2012

Ahead of the upcoming European Council meeting at the end of June, the leaders of Germany, France, Italy and Spain united in Rome on plans for a EUR130bn (USD162bn) growth pact, for greater European integration, as well as on plans for the introduction of a financial transactions tax.

Following the meeting, German Chancellor Angela Merkel underlined the commitment of the four largest economies in the euro area to do everything to ensure the future of the euro as a common currency.

While underscoring that much progress has been made, notably as regards the development of “common instruments of solidarity” and the consensus on the fiscal compact aimed at budgetary consolidation, Merkel explained that the focus is now to address the issue of growth and employment.

Merkel confirmed plans to use 1% of euro area gross domestic product (GDP), around EUR130bn, to invest in growth. That is the “right signal that we need”, Merkel said.

Reiterating that growth and solid finances are “two sides of the same coin”, Merkel explained that although solid finances are a prerequisite, they are not enough if there is no growth or job creation. That is the most urgent problem facing Europe, the Chancellor pointed out.

All four countries support the introduction of a financial transactions tax, the German Chancellor said, insisting that the impression remains that the financial markets have not sufficiently contributed to the costs of the crisis. This is another “important message”, Chancellor Merkel stated.

Merkel emphasized that the third key message to send to the European Council is the need for greater political integration. According to the Chancellor the lesson from the crisis is more Europe, not less. The Chancellor alluded to the fact that European Council President Herman Van Rompuy and European Commission President José Manuel Barroso are currently working on proposals for increased political union.

Underlining the need to control budget deficits and to reduce state debt, Spain’s Prime Minister Mariano Rajoy pointed out that all instruments must be used to ensure financial stability in Europe. Rajoy insisted that all four leaders agreed on the need for more Europe, for a banking, fiscal and political union.

Commenting on the outcome of the talks, Italy’s Prime Minister Mario Monti insisted that while growth needs budgetary discipline as a solid basis, budgetary discipline can only be sustainable when it is accompanied by appropriate growth and employment initiatives.

Monti said that at the next European Council meeting all four countries would work together to support a series of actions aimed at boosting the economy, investment and job creation, to increase competitiveness in Europe and to further strengthen the Single Market.

In his remarks, the new French President François Hollande underlined the need for increased cooperation to enable the implementation of a tax imposed on financial transactions as quickly as possible.

When questioned, Hollande maintained that he had not ruled out the idea of eurobonds, arguing that eurobonds are “a useful instrument for Europe”, and explaining that he would advise continuing work in this direction.