October 18, 2012

Merkel Calls for Financial Transaction Tax-Funded Aid Plan

New pool of money could be used to boost competitiveness

Chancellor Angela Merkel of Germany raised the prospect of a new European aid fund that would be used to help struggling eurozone countries finance projects to improve their fiscal well-being and make them more competitive. She also suggested that the money to finance the fund could be found in the proceeds of a financial transaction tax already approved by 11 member states.

Chancellor Angela Merkel of Germany (Photo: AP)Bloomberg reported Thursday that Merkel (left) spoke to German lawmakers before leaving for a two-day European Union leader summit meeting, and raised the prospect of the tax-funded aid in place of sharing debt obligations.

Speaking about heightened economic coordination among European nations, she voiced “surprise” that a proposed regulator holding veto power over national budgets was received poorly.

She was also critical of the proposal by EU President Herman van Rompuy, and supported by France, Italy and Spain, to pool eurozone debt. That was not the way to go about it, she said, adding that providing financial aid without strings attached has meant that some countries have failed to take steps to bring their economies in line. “[A]nd therefore joint liability is the wrong answer,” she said in the report. What is needed instead, she proposed, is the aid fund: “exactly this kind of dedicated solidarity.”

She was quoted saying, “To give all member states the opportunity then to improve their competitiveness and to actually be able to implement these commitments, I propose that we introduce a new element of solidarity.” She added, “Yes, we need solidarity, but we need a form of solidarity that leads to what we need: more competitiveness.”

In her view, the aid fund is just that, and would be “limited in time and project-based.” She suggested that it could be funded by the proposed financial transaction tax that has already met with the approval of a number of European states. Adopting the tax as a source of funding for the aid fund, she added, “would maybe even lead to more euro states introducing” the financial transaction tax.

Disbursements from the fund would be watched over, she said, by European leaders, the EU Commission and Parliament. Countries having a difficult time managing to invest while imposing fiscal austerity could draw on the fund to finance projects.

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