BERLIN – German Finance Minister Wolfgang Schäuble has declared the need for a "real fiscal union" in Europe. Schäuble said the lack of coordination between currency and financial policies in Europe needs to be addressed before there can be any joint debt management. The idea of a banking union, with a pan-European deposit guarantee and supervisory authority, he said in an interview this week, would be the next step.

The remarks signal a major shift in Berlin in the face of recent news that Spain needs more money but that the markets are de facto closed to it at present interest rates (7% for 10-year bonds). And yet, Spain has to recapitalize its banks, and looks increasingly likely it will need a bailout. Meanwhile, in Brussels, Berlin and Paris don't seem to be giving much thought to what's going to happen in Greece after the elections.

Because Germany imposed such severe austerity measures on Europe, it is feeling less and less loved. Chancellor Angela Merkel has started to let up a little: according to media reports, her government has put a package together that will supposedly inject renewed energy into fledgling Europe. The concept, called Mehr Wachstum für Europa: Beschäftigung – Investitionen – Innovationen (More Growth for Europe: Jobs – Investment – Innovation), includes shoring up the European Investment Bank to the tune of 10 billion euros, state guarantees for private-sector bonds, and funding measures to help reduce unemployment rates among young jobseekers.

Political scientist Wichard Woyke of Germany's Münster University says, however, that all this signals a repeat of a known pattern. Bailout money for Greece was initially rejected in Berlin, for example, and then after some delay "Angela Merkel changed her position." Now she's surrendering on the growth issue, which Germany's European partners are pushing. Werner Weidenfeld, a political scientist at Munich's Ludwig Maximilian University (LMU), also believes that the time has come for more cooperation: "A currency union doesn't work without political union."

According to Weidenfeld, the German government is aware of this – and has been for a long time. But Merkel and Schäuble had been letting the issue lie so as not to break the will to reform in troubled countries. Weidenfeld stresses that "the Germans have kept a positive basic attitude towards Europe," despite discontent about debt-driven economies and bailout funds, as regular polls show. But since March the DAX has been heading south, and that might also be a reason why Schäuble and Co. are turning to more Europe-friendly rhetoric.

Different visions of fiscal unions

As far as Europe is concerned, the German finance minister sees himself as something of a visionary. He is driven by the basic belief that Europe needs a closer political union. Two weeks ago, when he was awarded the Charlemagne Prize -- given to those who have served the European Union's cause -- IMF head Christine Lagarde said: "There is no greater advocate of European integration than Wolfgang Schäuble." The fact remains that since the beginning of the financial crisis hardly anyone has fought harder against financial integration in Europe than Schäuble.

So whether Schäuble's present stand helps the situation remains to be seen. "There are many different ways to accommodate a ‘fiscal union" formula," Europe expert Wichard Woyke points out. And the German finance minister did give some clue as to what he understands by it in Tuesday's interview. He stressed that "high levels of debt cannot be fought with even higher deficits." This is a familiar tune. Translated, it means that for the time being, a status quo should remain. Germany wants long-term growth through structural reforms – and a worsening economic climate due to austerity measures is an uncomfortable but unavoidable side effect that has to be taken into account.

So is what's presently coming out of Berlin just rhetoric? Werner Weidenfeld doesn't think so. "With the fiscal pact, Europe will already be half-way there," he says. Wolfgang Schäuble sees it that way too. The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, which was signed last December after two months of negotiations, should be incorporated into EU law within five years. By then, according to Weidenfeld, the German government hopes to have paved the way for a functional Europe, which also means signing agreements on issues like banking and fiscal unions.

European ideas on the latter diverge -- to France and Italy "fiscal union" means pan-European revenue sharing, while to Germany it means having more say in national budgets. But one thing is clear: before Europe has anything even close to a fiscal union, there will be more meetings. The next Euro summit is on June 21.

Read the story in German in Tages Anzeiger.

Photo - WEF