France, Germany offer steps on Europe debt crisis

Under pressure to show a unified approach to the crisis facing Europe’s economies, the leaders of France and Germany met Tuesday and proposed forming a “real economic government” over the 17 countries that share the euro currency.

The proposal of closer cooperation on economic matters was designed to show the resolve of the continent’s two biggest economies to defend the euro against financial markets that for months have questioned the solvency of some member countries.

At the hastily convened summit in Paris, German Chancellor Angela Merkel and French President Nicolas Sarkozy also pledged to harmonize fiscal policies between their nations, and called on Eurozone members to enshrine their treaty pledges on deficit and debt limits in binding constitutional law.

But the leaders stopped short of taking the step that an increasing number of observers see as essential to protecting the euro: issuing Europe-wide bonds that might stop the speculation on the bonds of the weakest members.

The so-called eurobonds would be widely unpopular in Germany, which would probably have to pay higher interest rates on its borrowing. Afraid the issue could tear her government apart, Merkel has argued against the need for eurobonds in the past, though some of her party’s political resistance may be weakening.

Tuesday’s mini-summit was an attempt to stave off those calls by showing that France and Germany, jointly known as the “motor of Europe,” were committed to defending the common currency.

Paris and Berlin have not often seen eye to eye on how to solve the continent’s financial problems. France has pressed for eurobonds and for a larger emergency fund to help troubled nations in the Eurozone, another measure Germany opposes. On Tuesday, Sarkozy and Merkel — considered Europe’s odd couple, he small and jittery and she serious and solid — held a working dinner and a news conference to outline their proposals.

The main idea to emerge was a demand that all 17 members of the Eurozone promise, before mid-2012, to rein in their national deficits as a constitutional requirement. Existing European treaties already limit the debt of member nations.

They also proposed the creation of a “real economic government of the Eurozone” in the form of a committee, made up of Eurozone heads of state who would meet twice a year and elect a president. The third idea to emerge from the conference was an old chestnut: a so-called Tobin tax, a levy on financial transactions. The European Commission has already proposed such a measure, fiercely opposed by Britain and Northern European countries.

Both leaders ruled out for now the creation of eurobonds to come to the rescue of troubled member nations.

“One day we could perhaps see this happening, but this will happen only at the end of the integration process in the Eurozone and not at the beginning,” Sarkozy said.

The upshot of the meeting was an attempt to reassure financial markets. The continent’s capitals were waiting for the Wednesday morning opening of stock exchanges to see whether Europe’s odd couple had convinced the region that they had put their differences behind them.

Willsher is a special correspondent.