French minister says bail-out alters EU treaty

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http://www.ft.com/cms/s/0/d6299cae-69b5 ... ab49a.html

By Ben Hall in Paris

Published: May 27 2010 20:37 | Last updated: May 27 2010 22:44

The eurozone's €440bn debt guarantee scheme is tantamount to the adoption of a Nato-style mutual defence clause and marks an "unprecedented" change to the bloc's treaties, according to France's Europe minister.

In an interview with the Financial Times, Pierre Lellouche laid bare the French government's conviction that the emergency stabilisation scheme agreed earlier this month amounted to a fundamental revision of the European Union's rules and a leap towards an economic government for the bloc.

"It is an enormous change," Mr Lellouche said. "It explains some of the reticence. It is expressly forbidden in the treaties by the famous no bail-out clause. De facto, we have changed the treaty," he added.

Mr Lellouche's comments are likely to go down badly in Germany, where the government has insisted the debt guarantee scheme to help beleaguered eurozone members is a temporary mechanism, set up on an intergovernmental basis where Berlin retains a veto, and in no way implies a breach of the EU's treaties.

Mr Lellouche said Angela Merkel, the German chancellor, was "right" to say the EU could not be a "transfer zone" where rich members directly subsidised poorer ones.

But he said the scheme institutionalised solidarity between states. "The €440bn mechanism is nothing less than the importation of Nato's Article 5 mutual defence clause applied to the eurozone. When one member is under attack the others are obliged to come to its defence."

Mr Lellouche rejected suggestions that the Franco-German relationship had broken down because of tensions over the Greek and eurozone bail-out plans.

But he conceded that it required a lot of effort to make the relationship work, likening the challenge to postwar reconciliation between the two countries.

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"The Franco-German relationship doesn't work all by itself. Going back to the Schuman declaration, that was an extremely ambitious initiative. That was only five years after the war, after the occupation, after Oradour-sur-Glane [site of a Nazi atrocity in France], after Auschwitz.

"To hold out our hands and offer a partnership of equals with Germany required a lot of vision. That's a bit what it is like today."

France accepted as "normal" that Germany now asserted its own national interests, Mr Lellouche said.

"Twenty years after reunification, there is a new generation, there is globalisation, there is demographic pressure, you have a Germany that like everyone claims its national interests. I understand that totally ... Since when did we expect Germany to act as cash cow indefinitely?"

Mr Lellouche said: "We French have work to do on our own responsibilities ... For 30 years our country hasn't produced a balanced budget."