Sarkozy and Merkel vow support for euro
But investors weren't impressed by the French and German leaders' commitment to greater regional integration. They wanted a bigger bailout fund for the euro, and they didn't get it.
German Chancellor Angela Merkel and French president Nicolas Sarkozy said today that their countries' economic futures are dependent on a healthy euro and promised to work toward greater European economic integration to protect against a future crisis for the currency.
Their meeting in Paris was aimed at reassuring investors frightened about the future of the euro after bailouts in Ireland, Greece, and Portugal and worried that major economies like Italy or Spain could be next. The two leaders praised the common currency as a force for stability and unity in Europe and promised to work toward harmonizing the spending and taxation polices of euro members to head off another debt blowout.
But investors, hoping for promises of a larger bailout fund and concerned about slowing growth, were disappointed, and stocks fell in the US after the meeting.
“The euro is our future,” said Chancellor Merkel. “It is the source not only of our wealth, but also of our peaceful co-existence in Europe.”
The two leaders said they would advocate a single corporate tax structure across the EU, a tax on financial transactions, and the creation of a so-called debt brake – a requirement for EU governments to keep a balanced budget. They also said they want a “true economic government” for the eurozone under the leadership of EU council President Herman van Rompuy, which means a system in which substantially more economic sovereignty is given up to Brussels by eurozone members than has hitherto been the case.
The Franco-German talks came on a day that economic growth figures for Germany and the eurozone as a whole showed a significant slowing. Germany’s GDP grew a meager 0.1 percent in the second quarter of this year, and the eurozone overall grew by only 0.2 percent. Figures in France published last week showed the economy there has ground to a halt completely. But Chancellor Merkel said in Paris she was confident both Germany and the France would enjoy healthy growth for the whole of the year 2011.
Yet the slump adds to the worries of European governments trying to regain control of a crisis that stems from fear of default on sovereign debt in a half-dozen European countries. Those fears are driving up borrowing costs for many nations and driving out investors, threatening a downward spiral that could do lasting damage to major economies like Spain, Italy, and even France, which were thought to be unassailable when Greece's debt woes first came to light.
The political opposition in Germany was as unimpressed as investors were.
“Much ado about nothing,” said Cem Ozdemir, leader of the German Green party. “It is completely obscure what competencies such a so-called economic government would have and whether it could impose sanctions on member states not sticking to the rules.”
The liberal Free Democrats, junior partners in Mrs. Merkel’s coalition government, praised the proposals as a strong signal for European markets, business and citizens.
[Editor's note: The original version of this story was published with the wrong byline.]