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January 19, 2018

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Franco-German eurozone diplomacy has started in earnest

France and Germany are on a mission. Both countries want to present a common position on future eurozone reforms between March and June. The finance ministers met yesterday, and Emmanuel Macron and Angela Merkel will meet today. Clearly, there is some momentum here. However, all plans are contingent on the grand coalition in Germany getting off the ground. Otherwise, all bets are off. Both governments are seeking to achieve as much progress as possible in this short period. Both governments also toned down their past habitual mutual criticism of the past, making way for a common positive narrative. The French are demonstratively pushing for a common agenda, while the Germans remain more reserved despite showing good will, finds Les Échos. Under the star of new joint initiatives, there is no longer talk of discipline, which irks the French. The Germans now talk about responsibility and solidarity. It all means the same thing, of course. Only the words have changed.

At the ministers' joint press conference yesterday Bruno Le Maire listed the completion of the banking union, a common capital market, and tax convergence, as the main priorities for the eurozone reform agenda. He no longer talks about tax harmonisation, observes Thomas Hanke in Handelsblatt. What is interesting is that tax harmonisation is actually included in the German coalition treaty - at the insistence of the SPD. It seems to us that Le Maire is making a concession he does not need to make. 

The French government is ready to throw in other concessions. On banking union Le Maire said France is ready to go further in providing guarantees for reducing risks relating to non-performing loans. But Le Maire insists that the euro budget remains on the agenda and is at the core of Emmanuel Macron's proposals for the eurozone. Not what the 14 renown economists suggested on Wednesday,  who insisted that a eurozone budget is not essential (with which we disagree). The acting finance minister Peter Altmeier also remained more reserved. Keen to have a German position on this sensitive issue, he said the euro budget will be subject of the coalition discussions with the SPD over the next months. Altmeier said it is the duty of France and Germany to advance the projects. Altmeier even praised the French government for their efforts to cut deficits and reform the country. But he also highlighted the difficulties for Germany to agree on the European common deposit insurance scheme. Asked for whether Germany would increase its investments to reduce its current account surplus, as suggested by the IMF and the Commission (see our separate story on this issue below), Altmeier played it save by saying that an investment policy is positive as long as it is financed by economic growth and not entirely by debt.

Most cited by the international press though was their statement that the two countries will work together to put some regulation of cryptocurrencies in place. 

Our other stories

We also have stories on the futile debate on the German current account surplus; on why investors are not panicking about Italy; on how Banco Popular was drained; on Sweden's panic about Russian interference in the election campaign; on the madness of the Brexit revocation debate; and on Varadkar's insistence that the UK fulfil its commitments in respect of the Irish border.

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