Meseberg Declaration a Real Contribution to the Debate on Euro Reform

Following their meeting at Schloss Meseberg in Brandenburg, the “Meseberg Declaration” signed off by German Chancellor Angela Merkel and French President Emmanuel Macron concretises the current proposals for a reform of the Eurozone. Professor Friedrich Heinemann, head of the Research Department "Corporate Taxation and Public Finance" at the Centre for European Economic Research (ZEW), offers his view on the matter.

“The Meseberg Declaration makes a real contribution to the debate on euro reform. The ideas it contains represent clear progress toward the potential transformation of the European Stability Mechanism (ESM) into a European Monetary Fund. According to the Franco-German proposal, the ESM should review the debt sustainability of crisis-stricken countries before granting loans, and impose collective action clauses, which facilitate debt restructuring for holders of government bonds. Furthermore, the ESM, much like the International Monetary Fund, is supposed to foster the dialogue between private investors and Eurozone debtors. The can be seen as being equivalent to the introduction of an insolvency procedure for euro countries. This would be a welcome correction of the European Commission’s strategy, which so far has been turning the possibility of an insolvency procedures into a taboo subject, and a great step in the right direction. Without an insolvency procedure for high-debt countries, the Eurozone remains vulnerable to blackmail from populist governments.

What gives rise to concern, however, is the fact that the Meseberg Declaration does not define a reduction in government bonds in bank’s balance sheets as a precondition for the European Deposit Insurance Scheme or for a backstop to the Bank Restructuring Fund. This means, yet again, that deposit guarantees and bank funds could ultimately lead to a collectivisation of government debt.”

For further information please contact:

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail friedrich.heinemann@zew.de