Merkel warns of incalculable dangers if struggling euro fails

GERMANY will present draconian rules it wants eurozone countries subject to when finance ministers meet in Brussels tomorrow, many of which would require treaty change.

Chancellor Angela Merkel for the second time in a week warned yesterday that, “if the euro fails, then Europe fails”, adding that the euro was in danger and the consequences, not just for Europe, were incalculable.

She wants the annual budgets of eurozone countries to be strictly checked by the European Central Bank or a group of independent economic research institutes ahead of being implemented by member states, according to German media reports.

The Commission has created controversy by suggesting this be done by it and finance ministers.

The draft, to be presented to the meeting by Finance Minister Wolfgang Schaeuble, will also propose penalties for countries that do not keep their budgets in check and overshoot debt rules.

These penalties include being deprived of some EU funds, temporarily or permanently, and in the event of continuous problems, being suspended from voting at eurogroup meetings – both of which Economics Commissioner Olli Rehn said he could accept.

The German draft also suggests that in extreme circumstances a eurozone country could be declared bankrupt – a step to avoid a repeat of the Greek crisis.

They will be discussed at the taskforce established by EU president Herman Van Rompuy to come up with a comprehensive new architecture for protecting the euro that will include measures for member state governments.

Countries like Ireland want to avoid treaty change but Germany – whose movement on euro matters has been severely restricted by their constitutional court rulings – is insistent a new agreement will be required.

The proposals put forward by the European Commission so far fall within the powers of the existing treaty. Commissioner Rehn, speaking to the Parliament yesterday, said that they need to go beyond budgetary surveillance to addressing macroeconomic imbalances in countries’ economic situations.

The Commission intends to propose a series of indicators that can be watched as an early warning signal of problems and these could include current account developments, productivity trends, unit labour costs and employment rates.

During a debate in the European Parliament, Dublin MEP Gay Mitchel asked the Commission to consider if some of the turmoil was being generated by powerful business and economic interests to destroy sovereign states.