Sarkozy, Merkel urge eurozone budget crackdown

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France and Germany have called for a budget crackdown in the eurozone to protect its single currency on the eve a major summit on the European debt crisis.

French President Nicolas Sarkozy and German Chancellor Angela Merkel urged European leaders to plan tighter discipline and oversight across the 16 euro countries when they meet Friday to sign a debt bailout package for Greece.

They must agree to boost surveillance and tighten sanctions for countries that fail to keep their deficits under control, the two leaders wrote in a letter released on Thursday.

The eurozone must also put in place a "robust framework" for dealing with crises to avoid a repeat of the 110-billion-euro (140 billion dollar) bailout for Greece from Europe and the International Monetary Fund, they added.

"For economic and monetary union to remain a success story, dealing with this crisis alone will not suffice," the leaders wrote to EU's President Herman Van Rompuy and Jose Manuel Barroso, head of the European Commission executive.

"We need to go further in drawing all the lessons and in taking all necessary measures to avoid a repetition of a crisis of this kind," they said, urging tighter controls, especially over derivatives and hedge funds trading.

"We must first reinforce the economic governance of the euro area," Sarkozy and Merkel wrote, citing an existing agreement by European countries to set up a "task force" for boosting legal controls.

Eurozone leaders must also work to improve the reliability of statistics, which they said were partly to blame for the Greek crisis.

They also urged leaders to examine the role of credit rating agencies, citing a downgrade of Greece's rating which shook markets just before an EU aid package was announced.

The letter avoided referring openly to proposals that have gained weight recently for a new system for countries to have their annual budgets reviewed by fellow eurozone members.

The euro on Thursday plunged to the lowest level against the dollar for more than a year and economists have warned that the debt crisis has threatened its very existence.

Worries have grown over the eurozone's weakest economies, the so-called PIIGS -- Portugal, Ireland, Italy, Greece and Spain.

Nobel laureate Joseph Stiglitz wrote this week that "the Greek financial crisis has put the very survival of the euro at stake," and US economist Nouriel Roubini warned Thursday that the eurozone could "break up."

"It is our duty to preserve the benefits of the euro," Sarkozy and Merkel wrote.

"This implies that we reinforce the coordination of our economic policies and the internal surveillance mechanism of the euro area so that each country shares responsibility for the stability of the euro."

The leaders rejected the idea that a member-state could be kicked out of the eurozone if it failed to live up to its fiscal commitments, saying they were "fully committed" to the unity of the single currency zone.

© 2010 AFP

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