France, Germany in push for 'fiscal union' to save euro
German Chancellor Angela Merkel kicked off a key week of talks on saving the euro by laying out a vision Friday for European "fiscal union", as French and British leaders met ahead of a pivotal EU summit.
French President Nicolas Sarkozy and British Prime Minister David Cameron held talks in Paris amid a diplomatic frenzy as EU leaders prepare for next Friday's summit that is set to shape the bloc's future.
In an eagerly awaited speech in the German parliament, Merkel said the stakes could hardly be higher, warning that the future of the euro was "indivisibly linked to the unification of Europe".
Cameron, whose country is not part of the 17-nation eurozone, seemed resigned to the treaty change that Paris and Berlin say is vital to solve the crisis, but warned he would use any tinkering to bring power back to London.
"If there is treaty change, then I will make sure that we further protect and enhance Britain's interests," he said after a working lunch with Sarkozy.
Earlier Friday, Merkel set out her vision for solving the eurozone debt crisis that has threatened to tip Europe, and the rest of the world, into a deep recession and has pushed the eurozone to the brink of collapse.
Europe, she said, was "on the verge" of creating a "stability union", with greater budgetary discipline and checks, along with automatic punishments for countries that break the rules.
"Anyone who had said a few months ago that we, at the end of 2011, would be taking very serious and concrete steps toward a European stability union, a European fiscal union, toward introducing (budgetary) intervention in Europe would have been considered crazy," she said.
Markets welcomed the speech, with European stocks sharply higher. Paris and Frankfurt clocked weekly gains of over 10 percent on renewed optimism that leaders will get to grips with the debt crisis and moves by central banks to inject liquidity into financial markets.
Tensions on European bond markets also eased.
But despite the more sanguine atmosphere, one analyst warned of the dangers of failure.
"The main players are in overdrive to come up with a comprehensive strategy to address the long-term issues," said Juergen Michels from Citibank.
"Market pressure is growing, and the risk of another half-baked deal would likely be more detrimental for confidence, which would have a negative impact on economic activity," he said.
IMF Managing Director Christine Lagarde warned Friday that the eurozone risked having a "lost decade" if leaders did not quickly come up with convincing solution to the debt crisis.
Merkel said she would be talking to "almost everyone" in the run-up to the summit and held talks with Austrian Chancellor Werner Faymann later Friday.
US Treasury Secretary Timothy Geithner will also travel to Europe next week for talks with authorities focused on fighting the eurozone debt crisis, the Treasury Department said.
An EU diplomat told AFP that the Brussels gathering, scheduled to run until next Friday afternoon, could well stretch into the weekend.
"What is absolutely necessary is to have a credible agreement for the EU but also for the markets, so we will not leave as long as we do not have a credible agreement," the diplomat said.
Europe's powerhouse couple, Merkel and Sarkozy, are due to meet in Paris on Monday to lay the ground for the summit and thrash out a common position on EU treaty changes.
"There is no alternative to changing the European treaties or -- this would be the second-best option -- to creating a new treaty within the eurogroup," Merkel said.
She said she was heading to Brussels "with the aim of changing the EU treaty" to push through her goals. "Rules must be respected. Respect for them must be supervised. Their violation must have consequences."
The chancellor added that the "fiscal union" should lead to a new "European debt brake" to stop countries from spending their way to the brink of insolvency.
Many European partners want to see the European Central Bank step in to buy up the bonds of distressed eurozone nations as central banks in Britain or the United States do, effectively acting as the lender of last resort.
A front-page story in Friday's Sueddeutsche Zeitung suggested that Merkel might be softening her rejection of this role for the ECB in return for stricter fiscal discipline.
"A concrete plan for treaty change, ECB intervention and then eurobonds -- that's the script for the euro endgame and the scenario which the federal government is working towards," wrote the weekly Die Zeit.
But Merkel dismissed this, stressing the ECB's independence and insisting: "The mandate of the ECB is different to that of the United States Fed or of the Bank of England," referring to the US Federal Reserve Bank.
She also reiterated that eurobonds, a pooling of the debt of eurozone nations, was not the solution now, saying anyone who thought so "had not understood the nature of the crisis".
Germany, Europe's top economy, believes that eurobonds and any compromise of ECB independence would lead to inflation, which the central bank was set up to prevent.
Speculation has also been rising that the International Monetary Fund could be the conduit for money from the ECB and other central banks that could possibly be used to shore up the finances of Europe's fiscally weak countries like Italy and Spain.
An IMF spokesman Friday mentioned central bank lending as a way to boost the Fund's depleted firepower.
© 2011 AFP