Resentment smouldered among European governments on Monday over a German-instigated drive to end wage indexation, raise retirement ages and lock debt limits into national constitutions across the eurozone. Chancellor Angela Merkel, backed by French President Nicolas Sarkozy, presented proposals for a "competitiveness pact" to EU leaders at a summit last Friday, provoking strong pushback due to both a lack of prior consultation and the objectives chosen.
-- Merkel sees tough negotiations on 'competitiveness pact'
-- Greece objects to constitutional debt limits
-- Italy, Belgium, Austria, Portugal, Spain resisting
Merkel made clear that agreement on these measures, designed to align economic policies more closely with Berlin's, must be sealed in March before she will agree to strengthening the rescue fund for debt-stricken eurozone countries. EU Monetary Affairs Commissioner Olli Rehn said EU leaders had given clear support for boosting the effective capacity of the eurozone's emergency fund and making it more flexible. "It is work in progress and I expect we will have decisions in the course of March," he said.
A senior source in Germany's governing coalition also said the heads of government had made good progress on beefing up the European Financial Stability Facility (EFSF), and he expected an agreement before the next formal EU summit on Mar. 24-25. Greece, already subject to a tough austerity programme in return for a 110 billion euro ($150 billion) EU/IMF bailout last year, voiced opposition to the attempt to make member states change their constitution if they want financial assistance in future.
"I reject categorically the thought of an EU decision to intervene in all national constitutions," Deputy Prime Minister Theodoros Pangalos told daily Ta Nea in an interview. Diplomats said Friday's EU summit was acrimonious with lots of finger-pointing at other countries' alleged shortcomings.
Belgium, whose caretaker government can ill afford a social crisis, objected to scrapping inflation-indexing of wages. Under the Belgian system, trade unions accepted a wage cut without protest last year because prices had fallen. Portugal, Luxembourg, Austria and Spain, which all have elements of automatic inflation adjustment, were also opposed.
Italy, which has the EU's second highest debt-to-GDP ratio after Greece, disliked the proposal to anchor binding debt reduction targets in its constitution. Austria said it opposed any EU-wide retirement age or centrally mandated system for linking the retirement age to demographic trends in each member state. Ireland, which is counting on foreign investment to help it recover from its own bailout, rejected the idea of setting a minimum corporation tax level in the eurozone or harmonising the corporate tax base.
"Some countries look only at public finance and forget the rest. I have the feeling that there is too much emphasis on debt reduction," said the official from a highly-indebted country.
Seeking to smooth ruffled feathers, Merkel and Sarkozy evaded questions about objections to their initiative and said they hoped Poland would join the "competitiveness pact", even though it is not yet in the euro area. French officials have said the individual measures in the pact are open to negotiation, and Merkel said she was awaiting proposals from the executive European Commission in this area.
The European Central Bank disclosed on Monday that it had bought no eurozone government bonds for the second week running in a fresh sign that market tensions have eased in expectations of a comprehensive response to the debt crisis in March. Portugal took advantage of this lull to launch a five-year syndicated bond issue and said demand was a healthy 6 billion euros - double the minimum planned placement.
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