French-German deal on euro zone 'fiscal capacity' in reach - Le Maire

WHISTLER, British Columbia - June 2018: French Finance Minister Bruno Le Maire said on Saturday he was confident of reaching an agreement with Germany this month about creating a joint "fiscal capacity" within the euro zone.

Le Maire and his German counterpart Olaf Scholz are hammering out a roadmap for euro zone reform with the aim of reaching a deal at a June 19 meeting of President Emmanuel Macron and German Chancellor Angela Merkel.

Speaking after a meeting of G7 finance ministers in Canada, Le Maire said that the fiscal capacity was at the core of the French proposals.

However, it is a very sensitive subject in Germany, where concerns run deep that German taxpayers could be left footing the bill for unsound economic policies in other euro zone countries.

Though the details are still vague and need to be fleshed out, the French want a joint fund that could be used to absorb economic shocks and smooth out differences between the euro zone countries' economies.

"If you want to reduce the economic divergences among the members of the euro zone you need a fiscal capacity," Le Maire said at the meeting in the Canadian mountain resort town of Whistler, British Columbia.

"We will still have in-depth discussions with Olaf Scholz to try to better understand the difficulties that the German government might have with that idea, but at the end I'm quite sure we will find a consensus and find an agreement," Le Maire added.

The fiscal capacity question is likely to be one of the most difficult issues to resolve before the road-map can be agreed along with a shared bank deposit insurance mechanism, which is also a taboo in Germany, one French official said.

The French and German positions are closer on the issue of transforming the euro zone's bailout fund into a European Monetary Fund and using it as a backstop to help prop up a country's banking sector if necessary, the official said.