French and German leaders have proposed a tax on financial transactions and closer joint governance of economic policy in a bid to curb the debt crisis in Europe.
After talks in Paris on Tuesday, French President Nicholas Sarkozy said he and German Chancellor Angela Merkel also proposed that all 17 eurozone countries should commit to balancing their finances and write that goal into their constitutional law by summer 2012.
“The first of these propositions is to create a real economic government for the eurozone,” Sarkozy told a news conference.
“This economic government will be made up of … heads of state and government that will meet twice a year, and more if necessary. It will elect a stable president for two-and-a-half years. The proposals include asking the 17 eurozone countries to put in a deficit limit rule in each government’s constitutions by 2012.”
Al Jazeera’s Jacky Rowland, reporting from Paris, said that expectations from the meeting had not been that high.
“We were told not to expect any major announcement; not to expect any major new initiatives,” she said.
“What we were expecting, essentially, is what we heard, which was a strong reaffirmation of the commitment of borth France and Germany to protecting and reinforcing a single European currency,” she said.
“The only really new initiative we heard in terms of … raising money was the idea of a tax on financial transactions between France and Germany.
“So I think the two leaders did what they set out to do, and the question now will really be whether there will be the kind of tightened governance; a greater fiscal responsibility that Merkel and Sarkozy were calling for.”
Bonds sales rejected
France and Germany, Europe’s largest economy, are under pressure to shore up the eurozone and restore financial market confidence.
The turmoil in the markets has raged for more than a year despite bailouts of Greece, Ireland and Portugal and the creation of an anti-contagion fund.
Al Jazeera’s Tim Friend’s report on the debate over eurobonds
Merkel played down calls for the introduction of eurobonds – jointly guaranteed debts of the 17 eurozone governments – as a solution to the crisis.
Many experts had suggested before the meeting that the only way to ensure affordable financing for the bloc’s most financially distressed countries would be for the eurozone area to issue joint bonds.
Some economists say eurozone countries will inevitably come around to accepting the idea.
“The market was obviously fixated on whether they would perhaps improbably agree to support the notion of eurobond issuance, where Germany and France would agree to underwrite and guarantee some of the debt issuance for some of the other members,” said Peter Buchanan, a commodities analyst in Ontario, Canada.
“Unless you get that, the general conclusion is that the crisis over there is not very much closer to a solution than it was a couple of weeks ago.”
Germany’s economy became the focus on Tuesday after economic data revealed a sharp slowdown in growth to just 0.1 per cent in the second quarter of 2011.
The eurozone as a whole posted a meagre 0.2 per cent growth in the second quarter.
“The German data are certainly disappointing,” said Juergen Michels, chief euro-area economist at Citigroup in London. “Everything is pointing toward stagnation in the euro area.”