Sarkozy, Merkel to meet on debt amid market tension

15th August 2011, Comments 0 comments

President Nicolas Sarkozy will host his counterpart Chancellor Angela Merkel in Paris on Tuesday as he struggles to chip away at German resistance to increased European financial governance.

Between them, Merkel and Sarkozy lead the 17-nation eurozone's biggest economies, and markets will be watching anxiously to see whether they can boost lender confidence amid an unprecedented sovereign debt crisis.

Last week, European stock markets saw their worst losses since 2008, amid rumours that France might lose its Triple A credit rating, but Berlin remains opposed to deep reforms of the European financial system.

Sarkozy has been pushing for governments to turn the debt crisis into an opportunity to forge a more centralised system of controls across the zone, better able in Paris' eyes to protect against future meltdowns.

But Merkel -- and German voters -- oppose any change that might create what they have dubbed a "transfer union", in which Germany's powerful export-led economy effectively underwrites its underperforming eurozone partners.

Such a system would make it easier for struggling members like Greece or Portugal to finance their massive public deficits, but would also inevitably transfer some of the cost of servicing these debts to German taxpayers.

Germany is not keen to go down that road and, on the eve of the talks, a government spokesman insisted the idea of creating a system of "eurobonds" to pool eurozone public debt would not even be on the table in Paris.

"The German government does not consider it worthwhile talking about eurobonds at the present time," Steffen Seibert told reporters.

Until last week, France was seen as among the better performing eurozone economies, even if still lagging behind its German neighbour -- but rumours, angrily denied, about the health of its banks rocked the market.

Sarkozy was forced to abandon his sacrosanct summer holiday at a Riviera villa with his pregnant wife Carla Bruni and fly back to Paris to propose tougher austerity measures, while Merkel remained calmly in Italy.

French officials say he still intends to press for an "acceleration" of reforms to Europe's financial institutions and hopes he and Merkel will agree "common positions on the reform of the governance of the eurozone."

He will also push for a quicker application of decisions made last month, when European leaders found another 159 billion euros for Greece and broadened the scope of their rescue fund to allow it to buy government bonds.

But, over the weekend, German officials were quick to head off any talk of broader reform -- rejecting both the idea of issuing joint eurobonds or of further expanding the 440-billion-euro European Stability Fund.

"There is no sharing of debts and not an infinite amount of aid," Finance Minister Wolfgang Schaeuble told Der Spiegel. "There are support mechanisms that we will continue to elaborate under strict conditions."

Merkel and Sarkozy are to meet in Paris in the afternoon, then hold a press conference before sharing a working dinner. Afterwards, they will make recommendations to European Union President Herman Van Rompuy, Seibert said.

Sarkozy will meet his own cabinet on Wednesday and next week, on August 24, he is due to unveil a new round of severe austerity measures designed to bring France's budget deficit down to less than three percent of its GDP by 2013.

© 2011 AFP

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