Sarkozy, Merkel want more unity
Leaders propose ‘new economic government’
PARIS - The leaders of France and Germany yesterday called for greater economic discipline and unity among European nations but declined to take the expensive financial measures seen by many investors as the only way to halt the continent’s spiraling debt crisis.
The Dow Jones industrial average fell, the euro slid against the dollar, and key European markets edged down in off-hour trading after Chancellor Angela Merkel of Germany and French President Nicolas Sarkozy announced the results of their emergency talks in Paris.
Sarkozy called for a “new economic government’’ for Europe that would meet at least twice a year with European Union President Herman Van Rompuy as its head, but he offered few other details.
Merkel and Sarkozy also called for all eurozone nations to enact constitutional amendments requiring balanced budgets. They said they want the process completed by next summer, but it would almost certainly run into political difficulties.
Both leaders said the moment was not right to replace 17 government bonds with a single one allowing weaker economies to borrow in cooperation with the powerhouse economies of France and Germany. A growing number of experts are calling for the eurobond as a way to prevent the unaffordable interest rates that have driven Greece, Ireland, and Portugal to seek bailouts from the eurozone countries and the International Monetary Fund.
New figures show slowing French and German growth, and the German government fears it would face higher borrowing costs and more risks if it had to borrow jointly with financially shaky nations.
“We have exactly the same position on euro bonds,’’ Sarkozy said. “One day we could imagine them, but at the end of a process of European integration, not at the beginning.’’
Merkel and Sarkozy also said they did not want to increase the size of the European Union’s $633 billion rescue fund, which may have to take over a massive, multibillion-euro European Central Bank program to support the prices of Spanish and Italian bonds by buying them up on the open market. The ECB spent $32 billion in the first week of the program alone and says it wants to hand off that responsibility in coming months to the rescue fund, or the European Financial Stability Facility.
Sarkozy described the EFSF’s current funding as “a considerable sum’’ and “sufficient.’’
The two leaders also proposed a Europewide tax on financial transactions and pledged to harmonize their countries’ corporate taxes in a move aimed at showing the eurozone’s largest members are “marching in lockstep’’ to protect the euro.
Investors may be concerned about how the euro bloc will put in place what its leaders have suggested and how a proposed tax on financial transactions may effect demand for European assets, said David Gilmore of Foreign Exchange Analytics in Essex, Conn.
“On the surface, it sounds very bold, a federal ‘eurozone,’ ’’ Gilmore said. “The practical part still seems . . . to be a pipe dream.’’
But some analysts say only tighter fiscal convergence between the eurozone’s 17 members, with the block’s strongest members guaranteeing the debts of the weaker, will resolve a crisis that has dragged on for nearly two years and resulted in a string of sovereign bailouts worth hundreds of billions of euros.
Sarkozy and Merkel stressed their commitment to defending the common currency, a cornerstone of integration on this long-fractured continent.
Sarkozy told reporters that he and Merkel want a “true European economic government’’ that would consist of the heads of state and government of all eurozone nations.
The new body would meet twice a year.
The move appeared a step toward the closer long-term economic integration that many analysts have said is inevitable to make the euro experiment survive, though it was unclear how much effect it would have in the short term.