FRENCH PRESIDENT Nicolas Sarkozy insisted yesterday that the determination of Paris and Berlin to defend the euro is “unbroken, inexhaustible and all-embracing”.
Mr Sarkozy and Chancellor Angela Merkel presented joint proposals for further reforms and euro zone integration after meeting in Paris yesterday, calling them essential steps to end ongoing instability.
“To strengthen the euro as our common currency, it is clear that we will need a closer interlocking of economic and financial policies in the euro zone,” said Dr Merkel.
“Germany and France see the need to demonstrate this by being at the forefront.” As well as a proposal to co-ordinate corporate tax in France and Germany, the two leaders called for agreement within a year on budget debt ceilings to be anchored in national constitutions. The two leaders proposed an EU financial transaction tax and twice-yearly meetings of a new body supervising euro zone economic governance.
“This governing body should meet twice a year – more regularly if necessary,” said Mr Sarkozy, proposing European Council president Herman Van Rompuy as its first head.
The French and German leaders dismissed talk of a common eurobond, though the French leader left the door open for later. “Perhaps we can talk about eurobonds at the end of European integration but not at the beginning,” said Mr Sarkozy.
“Eurobonds would endanger those who have the best credit ratings, burdening them with debts from other countries over which they have no influence.” Mr Sarkozy, anxious to calm market nerves over the French economy, renewed his determination to establish a so-called “golden rule” to make French budget deficits unconstitutional. “France has had a budget deficit for 35 years, so it’s not a problem of the [political] left or right,” he said. “This is a problem of common sense: do we want to break with such bad habits or not?”
Such a measure, already agreed in Germany, comes as France’s debt hits around 85 per cent of GDP this year – well above the euro zone’s recommended 60 per cent. Mr Sarkozy said that if the necessary two-thirds majority could not be found it parliament, it would become an election issue.
Dr Merkel welcomed France’s “golden rule” plan, calling for similar efforts in other euro zone parliaments with cross-party support to “demonstrate the move is a national obligation”.
“It’s a courageous step to call for this,” she said. “If we had all acted responsibly in the past, we wouldn’t be grappling with this today.”
The two leaders also said they would not support expanding the capacity of the European Financial Stability Facility and dismissed fears it would be overwhelmed by bailout requests for assistance from Italy and Spain.
“Why not double, triple, quadruple the fund’s capacity? I don’t see why we should encourage speculation,” said Mr Sarkozy. “If the chancellor and I set new capacity the markets would next week say that’s not enough either. We have to manage this sensibly.”
Dr Merkel brushed off yesterday’s weaker economic data for Germany, saying a lesson from the euro zone crisis was “not to pay too much attention to momentary snapshots but rather the overall economic picture”.
After days of heated debate in Berlin about eurobonds, some German analysts said the proposals fell short of even modest expectations.
Others said the psychological element of yesterday’s meeting should not be underestimated.
