Merkel Euro Budget Veto Policy Is Wrong, Council of Advisers Say

Efforts by German Chancellor Angela Merkel’s government to expand powers of the European Commission to allow it to veto euro area states’ budgets are misplaced and unrealistic, her panel of economic advisers said.

Sovereign rights over budgets must remain under control of national governments while obligations to follow the fiscal arrangements devised to stabilize the euro are tightened, said the group, known as the “Five Wise Men,” in their annual report presented to Merkel in Berlin today. The veto plan, aired last month by German Finance Minister Wolfgang Schaeuble, sparked opposition in France, Italy and Spain.

Giving the commission budget veto powers or creating a euro area finance minister would be a “highly difficult step, possibly without hope of realization at the national level, not least in Germany,” said the five economists. The proposal “is to a high degree politically improbable.” Merkel said in the German parliament on Oct. 18 that she was “surprised” about the proposal’s negative reception.

The government’s push may conflict with the efforts of Germany’s own parliament, pursued at the constitutional court, to uphold sovereign powers over the budget. Merkel has previously raised the possibility of empowering the European Court of Justice to punish infringements of “Fiscal Pact” treaty that seeks to bind states to tighter fiscal discipline.

Merkel isn’t obliged to adopt proposals of the wise men.

Stabilize Euro

The group’s review of the German, European and global economies advocates a three-pillar plan to stabilize the euro. The pillars -- tighter fiscal policy anchored in binding treaties, a European “banking union” and financial market rules -- are for the most already in progress, the panel said.

In its 2011 report, the group proposed creation of a euro area “debt redemption fund” to service states’ excessive debt. While rejected by Merkel, the proposal still merits consideration, giving states a fresh start in adhering to new fiscal rules while easing the burden of legacy debt, the group said.

The council of economic advisers, established in 1963, consists of Chairman Wolfgang Franz, Peter Bofinger, Claudia Buch, Lars Feld and Christoph Schmidt.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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