Franco-German thinkers offer Euro-treaty alternative

By Paul Taylor

PARIS (Reuters) - Do intellectuals matter in politics?

To judge by the short-term crisis management and late-night bailouts by governments in the euro zone turmoil of the last four years, it is tempting to conclude that Europe's thinkers have had scant influence on policy.

With the exception of a European banking union, first sketched in 2009 by Nicolas Veron of the Bruegel think-tank and Adam Posen of the Peterson Institute for International Economics and now becoming a reality, policymakers have largely discarded the dozens of blueprints offered by research bodies.

Proposals for a European finance ministry, common euro zone bonds, short-term euro bills or a debt redemption fund have all landed in the waste basket, mostly due to German opposition. The more traditionally federalist plans were too blatantly at odds with the public mood and the power balance among states.

But new thinking from German and French reflection groups advocating closer integration of the 18-nation single currency area, with its own budget and parliament, may now gain traction in Berlin, Paris and Brussels.

Their ambitious ideas contrast with the bland manifestos of the main parties for European Parliament elections in May, penned by politicians eager to reassure voters the euro zone crisis is behind them and fearful of a eurosceptical backlash.

Both the German Glienicke Group and the French Eiffel Group warn that the crisis, though temporarily stabilized, is far from over. Stagnant economies, mass unemployment and mountains of debt pose big risks for the future.

"The complacency of large sections of the German public with regard to the euro crisis is not only unfounded: it is dangerous," the German experts say. "None of the fundamental problems underlying the euro crisis has been solved."

Their initiative began last August when labor economist Jakob von Weizsaecker brought together a bipartisan group of 11 economists, constitutional lawyers and political scientists in a Berlin suburb to thrash out their differences on Europe.

UNEMPLOYMENT INSURANCE

Close to the Glienicke Bridge, once the setting for Cold War spy exchanges, they explored ways of building a stronger political and economic Europe compatible with German insistence that states remain liable for their own debts.

"We wanted to have an impact on the German debate because that's where most of the problems are," said Daniela Schwarzer, director of the Europe program at the German Marshall Fund.

"The starting point was accepting the very German principle of the 'no bailout' clause, which Germans will not give up for legal and political reasons."

Their key proposal is that the euro zone creates a central fund providing a common unemployment benefit to act as an economic stabilizer in downturns and complement national insurance systems in states that reform their labor markets.

The fund would be financed by a membership fee of about 0.5 percentage points of member states' national output.

A separate treaty would establish a "Euro Union", with an economic government, elected and overseen by a Euro-parliament, and empowered to override the budgets of member states that breach agreed fiscal rules.

This is far from consensual in Germany, where hostility to a "transfer union" runs deep and attachment to the Bundestag's fiscal sovereignty is strong. The authors acknowledge it may be necessary to amend the German constitution to this end.

But they argue it is in Germany's economic and political interest to stabilize the currency area which is the foundation of prosperity for Europe's biggest economy.

Past German overtures for closer integration have fallen on deaf ears in France, Berlin's chief EU partner, because a deep rift between pro-Europeans and defenders of national sovereignty that runs through all the main French parties.

When Christian Democrats Wolfgang Schaeuble and Karl Lamers offered a blueprint for a "core Europe" in 1994, it foundered on stony ground in Paris. The same fate befell then Foreign Minister Joschka Fischer's 2000 Humboldt speech that challenged the French to advance together in European integration.

While official Paris has kept silent, EU lawmaker Sylvie Goulard mobilized a dozen experts from politics, law, business and academia in the Eiffel Group to pen a response calling for a "Euro community" along similar lines.

"Each group tried to break a national taboo. For the Germans, it was a 'transfer union'. For the French, it was supranational democratic institutions," Goulard said.

The French group wants the euro community to raise its own revenue independent of national budgets, such as environmental taxes, to stop the EU's eternal squabbles over a "fair return". They say it should finance major transport, energy and digital infrastructure projects as well as unemployment insurance.

SEARCH FOR AGENDA

Why do these proposals stand any better chance of avoiding ending in the dustbin than their predecessor?

For one thing, many policymakers realize, even if they do not say so publicly, that the euro zone crisis is far from over and the north-south economic gulf it has opened poses a threat to long-term stability.

There is also a political reason why the Glienicke and Eiffel initiatives stand a chance: some leading politicians in Germany and France are in search of a European agenda.

President Joachim Gauck, who invited the Glienicke authors to meet him, is urging a more active German foreign policy, taking responsibility in line with Berlin's economic weight after years of introversion tinged with pacifism.

Foreign Minister Frank-Walter Steinmeier, a Social Democrat, wants to put his ministry back on the map in European policy after four years in which conservative Chancellor Angela Merkel and Finance Minister Schaeuble dominated the field.

In Paris, President Francois Hollande and his Socialist government have avoided big European ideas since he was elected in 2012 because they divide the left. But he recently signaled he wants to revive Franco-German leadership in the euro area now that Berlin has a new Grand Coalition.

It might send a more positive signal if the proposed euro zone budget funded a pan-European apprenticeship system rather than the dole.

But for once, the thinkers may find open doors and ears for their ideas.

(Writing by Paul Taylor; Editing by Toby Chopra)