Sarkozy, Merkel meet on debt crisis

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France's Nicolas Sarkozy met Germany's Angela Merkel in Paris on Tuesday as jittery markets anxiously awaited any sign that European leaders have a plan to resolve the eurozone debt crisis.

European stock markets were already down sharply as the president welcomed the chancellor to the Elysee, with traders looking to Europe's power couple for reassurance, despite warnings not to expect major announcements.

Merkel and Sarkozy lead the eurozone's two biggest economies but are split over how to address the crisis, with Berlin opposed to any move that would see its taxpayers underwriting its struggling eurozone partners' debts.

The chancellor had been expected to come to the meeting the stronger of the two, with Germany's export-led economy looking powerful and France battling to shake off rumours that it might lose its to triple-A credit rating.

But, as she prepared to set off for Paris, Merkel's position was clouded by bad growth figures: Germany reported a meagre 0.1-percent gain in the second quarter and slower first-quarter growth than initially reported.

News that even the German powerhouse -- and the probable eventual paymaster of any plan to resolve Europe's sovereign debt crisis -- was losing momentum sent stocks and the euro falling.

French growth is stagnant and Brussels said that eurozone growth as a whole was only 0.2 percent in the second quarter, well down from 0.8 percent in the first and short of analyst forecasts for 0.3 percent.

The London, Paris, Frankfurt, Milan and Madrid stock markets opened down, falling sharply before recovering some of the lost ground.

"Given the recent history of failures by the German and French leaders to get ahead of the crisis, not much should be expected of this summit," warned Sony Kapoor of economic policy think-tank Re-Define

"It would be better not to meet than to meet and not have anything useful to say," he added.

Prior to the talks, Berlin and then Paris had said the summit would not address calls from some quarters for the eurozone to issue a "eurobond" to pool member states' government debt.

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

Sarkozy has been pushing for a more centralised system of controls across the eurozone, better able in Paris' eyes to protect against future meltdowns.

But Merkel -- and German voters -- oppose any bid to create what they dub a "transfer union" in which Germany effectively underwrites its underperforming eurozone partners.

This would be a complete non-starter for Berlin without a quid pro quo of new rules to enforce tougher fiscal discipline throughout the bloc.

French officials said Sarkozy still intends to urge 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."

The ECB has resumed buying bonds issued by eurozone members, spending 22 billion euros last week to bring the total spent to 96 billion euros.

This has pushed down Italy and Spain's borrowing costs sharply, taking the immediate pressure off as they try to stabilise strained public finances.

Spain sold 5.7 billion euros in government bonds at sharply lower rates on Tuesday but with the markets still jittery, traders are looking to Tuesday's Paris meeting for a sign of what might come next.

Over the weekend, German officials dampened talk of broader commitments -- rejecting both the idea of eurobonds or of further expanding the 440-billion-euro European Financial Stability Facility.

Merkel and Sarkozy were to meet in Paris for just over two hours then hold a press conference at 1630 GMT before sharing a working dinner.


© 2011 AFP

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