Merkozy Want EU Fiscal Pact Signed by March 1

Finance | January 9, 2012, Monday // 18:15|  views

French President Nicolas Sarkozy (L) and German Chancellor Angela Merkel hold a joint press conference at the Chancellery in Berlin, Germany, 09 January 2012. EPA/BGNES

German Chancellor Angela Merkel and French President Nicolas Sarkozy seek to craft a master plan for rescuing the euro over the next two months, they made it clear in Berlin Monday.

In their first meeting for 2012, Merkozy said they aimed to wrap up negotiations among euro zone countries on a new fiscal pact tightening budget discipline in January, and to get it signed at the latest on March 1.

The latest draft would give more power to the executive European Commission to reject national budget plans that deviate from agreed EU targets.

Euro zone states agreed in December 2011 to go ahead with an agreement outside the EU treaty after Britain vetoed plans to amend it to allow stricter enforcement of deficit limits.

The German and French leaders also agreed to ask the ECB to recommend how the euro zone's rescue fund, the European Financial Stability Facility, could be made most effective.

Berlin has so far opposed calls from Paris and elsewhere to increase the size of the EUR 440 B EFSF.

Merkel said she wanted Greece to stay in the euro zone, and a private sector debt writedown was "a necessary but not sufficient precondition to get Greece back onto an acceptable path."

"Greece should get a chance but Greece remains a special case," she said, adding that Athens must commit to further economic reforms.

The German and French leaders also stressed Monday that boosting economic growth in the 17-nation eurozone is a priority.

Germany has so far been the biggest proponent of debt reduction as the key for financially weak countries to regain investor confidence. On Monday, however, Chancellor Angela Merkel acknowledged that austerity alone cannot do the job.

"Budget consolidation is one of the legs Europe's future must be built on, but of course we need a second leg and that is ... the question of economic growth, jobs and employment," she told reporters alongside French President Nicolas Sarkozy.

They proposed that Europe compare countries' labor market practices and learn from the best, and that already available European funding be used to support small and medium-sized companies and projects such as expanding broadband Internet networks.

They said they would consider speeding up payments into the euro zone's permanent rescue fund, which is to start work this summer.

Sarkozy acknowledged the gravity of Europe's situation as the crisis enters its third year.

"The situation is tense, perhaps more so than ever in the eurozone's history," he said. Growth, he insisted, is "the priority today."

What is more, Germany and France warned Greece on Monday it will get no more bailout funds until it agrees with creditor banks on a bond swap.

Chancellor Angela Merkel and President Nicolas Sarkozy insisted that private sector bondholders must share in reducing Greece's debt burden, along with new European and IMF lending.

They rejected both a call by a European Central Bank policymaker to abandon plans to make private investors take losses, and a leaked International Monetary Fund memo that cast doubt on Athens' ability to reform its public finances.

"We must see progress on the voluntary restructuring of Greek debt. From our point of view, the second Greek aid package including this restructuring must be in place quickly. Otherwise it won't be possible to pay out the next tranche for Greece," Merkel declared.

Merkel and Sarkozy also voiced their determination to press ahead with a tax on financial transactions opposed by Britain, but they appeared to diverge on the timing.

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Tags: Nicolas Sarkozy, Angela Merkel, French President, German Chancellor, debt crisis, debt crises, European Financial Stability Facility, EFSF, France, Germany, greece, Portugal, ireland, Spain, Italy, euro zone, Eurozone, EU, European Union


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