During bilateral talks on June 19 at Meseberg Palace, outside of Berlin, French President Emmanuel Macron and German Chancellor Angela Merkel hammered out a compromise ahead of the landmark EU summit in Brussels on June 28-29 that include a proposal to coordinate the two countries’ corporate tax rates and an overhaul of the European Stability Mechanism, the Eurozone’s bailout fund, to expand its mandate and allow it to provide emergency loans to EU countries that are in financial trouble, as well as a new Eurozone budget that will be overseen by the European Commission.

The two leaders also agreed to cut the number of EU Commissioners from the current 28 and said they would be willing to accept means the two countries accept  own Commissioners on a rotational basis.

Eurozone Agreement

In his statements, Macron clearly indicated that the next budget would take into consideration the overall “annual revenue and spending”, but France also wants Germany to take significant steps towards a further economic integration of the Eurozone in the hope that it will reduce systemic political and economic volatility.

Macron has repeatedly called for a Eurozone budget funded by EU-wide taxation and advocated for a corporate tax that would cover the whole of the EU to fund the budget, which are two initiatives that Germany fundamentally opposes.  In a recent interview, Merkel said she would not commit to a budget that would exceed double-digits, in terms of billions of euros.

The European Commission in May proposed the introduction of sovereign-bond-backed securities issued against a pool of sovereign Eurozone bonds – of higher and lower risk – depending on investor appetite. There was no mention of the proposal during the June 19 meeting, according to reports.

Germany leads a group of countries that also includes Austria, the Netherlands, and Finland that are net contributors to the EU budget. The group wants to avoid increasing contributions to the EU budget, but a number of EU Member States – including Ireland, Malta, the Netherlands, and Luxembourg – vehemently oppose the idea of a single corporate tax as much of their competitiveness is founded on taxation.

Over the last few weeks, Berlin appeared ready to concede a limited fund rather than a budget – to the tune of €30 billion – that would invest in countries caught in an economic crisis.

Migration Management

The meeting came on the heels of a tense domestic standoff for Merkel, who was given a two-week window to broker an EU-wide migration deal before the European Union summit in Brussels on June 28-29.

Merkel’s junior coalition partner – the Christian Social Union (CSU) – wants an immediate curb on the number of immigrants being allowed into the country. Merkel wants to secure a multilateral, EU-backed solution before the leader of the CSU and Minister of Interior, Horst Seehofer, proceeds with his own unilateral national plan on the migration issue.

For the time being, Macron and Merkel are currently in synch when it comes to the migration question. Following their June 19 meeting, Macron noted that “France and Germany will ensure that those who are registered in a specific Schengen Zone country will be taken back to the country where they were registered as quickly as possible.”

The implementation of the Dublin II Treaty for asylum seekers has met stiff opposition by the bloc’s main countries of entry, Italy and Greece, as well as by the Visegrad four – Czech Republic, Hungary, Slovakia, and Poland – and seen with deep scepticism by the Baltic states, Austria and Slovenia.

Macron and Merkel have vowed to use bilateral and multinational agreements to disrupt the flow of refugees into the Schengen Zone and the need to reinforce the capacity of Frontex, the European Border and Coast Guard Agency. Their proclamations were met with rumours that members of the Italian, German and French governments discussed on June 15 and June 18 proposals about the possible creation of refugee detention camps in North Africa.