France and Germany have said that over-indebted eurozone countries could be barred from voting or participating in certain discussions in Council even without a treaty change. They suggest in a paper on economic governance, published on 21 July, that an interim “political accord” could be reached between the soon-to-be 17 members of the eurozone to bar an “offending” member state from taking part in certain procedures. “A single currency simply cannot work properly without enhanced economic policy coordination,” they say. “We must move swiftly yet operationally, leveraging all options offered under the existing treaties to cement the financial stability of our Union with a view to delivering better value and more jobs,” the paper says.

The European Commission said, on 22 July, that the text builds on proposals it has already made, set out in two communications published in May and June (see Europolitics3978 and 4010), suggesting an overhaul of the Stability and Growth Pact - which sets debt and deficit limits - and surveillance of broader economic policies.

Specifically, the Franco-German paper calls for much closer coordination of budgets and economic policies, pushing for the so-called ‘European semester’, where governments send spending plans to the Commission each spring rather than at the end of each year. France and Germany want to see public and private debt taken into consideration when looking at a country’s economic strength. “We need ways to identify and deal with member states that are engaged in unsustainable macroeconomic strategies, in particular those that show poor competitiveness and finally endanger the smooth functioning of the monetary union,” they insist in a dig at Greece, Spain and Ireland, which have all been weakened by too-high government borrowing or an over-dependence on bank lending in the property sector. “We must also be in a position to issue clear, binding recommendations,” the paper adds. The suspension of EU cohesion funding and a permanent bailout fund should also be considered, the paper concludes.

It was sent to European Council President Herman Van Rompuy, whose task force on economic governance is examining ways to overcome the current debt crisis in the eurozone and wider EU. The task force is due to report back in October, although the Commission has already signalled it will bring out legislative proposals as early as September. The paper is part of a bid to rebuild the Franco-German relationship, which broke down over the Greek bailout and attitudes on how to rebalance eurozone growth (the comments by French Finance Minister Christine Lagarde that surplus countries - ie Germany - should boost domestic demand rather than relying on their neighbours to buy up their exports).

The Franco-German paper is available at www.europolitics.info > Search = 277353