Paris, Berlin aim to rebuild EU on euro

French President Sarkozy (L) and German Chancellor Merkel gesture as they address a news conference in Berlin in this June photo. Merkel says France and Germany has started building a fiscal union. REUTERS photo

German Chancellor Angela Merkel declared Friday that European nations were on the verge of creating a “fiscal union” with rigorous budgetary oversight to battle the eurozone debt crisis. The announcement came a day after French President Nicolas Sarkozy said Paris and Berlin will push for a broad treaty “refounding and rethinking the organization of Europe.”

The French leader warned that that without some new “convergence” among European countries, the crisis could destroy the euro.

The most powerful signal for that convergence came from Merkel on Friday. “We are not only talking about a fiscal union, we are beginning to create it,” she said in a speech to parliament, adding it would be a “fiscal union with strict rules, at least for the eurozone.”

“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,” Agence France-Presse quoted her as saying. “Now these items are on the agenda, we are on the verge of it, there are still difficulties to be surmounted but their necessity is now widely recognized.”

Merkel will hold talks with French President Nicolas Sarkozy on Monday to hammer out a common position.

In his Toulon speech in front of 5,000 cheering supporters, Sarkozy warned that the developed world was entering a “new economic cycle” dominated by austerity, heralding tough times ahead for jobs and business.
“There can be no common currency without economic convergence, without which the euro will be too strong for some, too weak for others, and the eurozone will break up,” the Associated Press quoted him as saying.

A ‘true economic government’

Sarkozy said that in Europe this would require a new political and budgetary consensus that would win back the confidence of the markets.

“France is fighting with Germany for a new treaty. More discipline, more solidarity, more responsibility ... true economic government,” he said, urging members to adopt a “Golden Rule” obliging them to balance their budgets.

Sarkozy spoke a day after the European Central Bank, the Federal Reserve and the central banks of Canada, Japan and Switzerland moved together to make it easier for commercial banks to borrow dollars. It was a move intended to calm financial markets, which had grown increasingly worried about European debt.

Seventeen countries share the euro, and those countries plus 10 more make up the European Union. All 27 would have to approve a change in the Maastricht Treaty, which created the euro in 1999. Sarkozy said the treaty “has revealed itself to be imperfect.”

On Friday, Merkel said the “fiscal union” should lead to a new “European debt brake” to stop countries from spending their way to the brink of insolvency. “We must strengthen the foundations of the economic and currency union,” she said.

Merkel said there was “no alternative to treaty change” which would codify budgetary discipline in the eurozone. “Rules must be respected. Respect for them must be supervised. Their violation must have consequences,” she said.

But Merkel once again ruled out eurobonds, a proposal to pool European debt to keep a lid on borrowing costs for member states, which European Commission chief Jose Manuel Barroso formally tabled last week.

“Whoever has not understood that they (eurobonds) cannot be the solution to the crisis has not understood the nature of the crisis,” she said.