Merkel and Sarkozy want eurozone ‘government’
The leaders of Europe’s two biggest economies have proposed a collective "government" for the eurozone 17-countries following discussions on how to deal with the area’s debts and ways to boost investor confidence following the sell-off of shares last week.
French president Nicolas Sarkozy and German chancellor Angela Merkel, who met in Paris, are also proposing that this government would be headed up by current European Union president Herman van Rompuy.
Mr Sarkozy also said that the issuance of euro bonds could be considered but only after the process of euro zone integration which could take years.
Currently eurozone members borrow separately in markets to fund their Government spending and that makes it difficult for cash-strapped countries like Ireland which is currently priced out of the market.
The introduction of euro bonds would mean eurozone members borrowing as one collective unit as is the case in the US.
Other plans include forcing member Government to signing up to balancing their finances and writing this into individual constitutions by mid 2012 and new taxes on financial transactions.
Germany and France are also working on "ambitious" joint plans to defend the euro, Mr Sarkozy said after the meeting.
Earlier in the day, growing fears of a double dip recession on weak European growth figures gripped investors.
But European markets did not have time to digest the news from Paris as they had closed once the plans were announced.
Economists had expected the eurozone growth figure to be 0.3pc and believe the latest statistics will add to investor fears of a double-dip recession and ongoing concerns about European debt levels especially powerhouses like Italy and Spain.
The figures are also bad news for Ireland whose economic recovery is being driven by exports - any weakness in trading partners like the 17-country eurozone makes the chances of growth slower.
“This is not unique to Europe and we see the same trend in the US,” said Jim Power, chief economist at Friends First.
“All the indicators are dangerous.
“One of the ways to reduce of debt is to grow out of it but it is obvious from these figures this is not happening.”
Europe grew by 0.8pc in the first quarter and stock markets across the continent began to tumble once the latest numbers were released.
The low growth was triggered by the poor performances of Europe’s two biggest economies – Germany and France.