The failure of the German government to pass a Competitiveness Pact might mean the beginning of the end of German supremacy in European fiscal policy making.
Shaping the project
In October 2012, the Presidents of the Eurogroup, the European Commission, the European Central Bank and the European Council (the ‘Big Four’) proposed that eurozone states should enter into ‘arrangements of a contractual nature’ for the purpose of closer coordination of their economic policies. In January 2013, in her speech at the Economic Forum in Davos, German Chancellor Angela Merkel mooted the idea of a ‘pact for competitiveness’. At the end of February, the European Commission presented a proposal for a ‘Convergence and Competitiveness Instrument’. In a joint paper released in June, the French and German governments called, among other things, for contractual arrangements for competitiveness and growth. And now the Council of the EU is negotiating on ‘Partnerships for Growth, Employment and Competitiveness’. These are many terms for one and the same project, namely a kind of troika regime for the whole euro area.
The driving force behind this project is the German Federal Government, and it may be regarded as Mrs Merkel’s pet project. For the first time, however, the ability of the German Government to drive the EU crisis-management agenda seems to be reaching its limits. Time and again, decisions on the competitiveness pact have been postponed. The big breakthrough was supposed to be made at the recent summit of EU heads of state and government in December 2013. Instead, they postponed further discussion until October 2014 – a significant blow for Angela Merkel.