Sarkozy and Merkel to meet as euro crisis gathers steam
Now French bank shares take a hammering as markets lose faith that debt issue will be solved
Published 12/08/2011 | 05:00
FRENCH President Nicolas Sarkozy and German Chancellor Angela Merkel will meet on Tuesday to discuss the euro crisis, amid persistent doubts in financial markets over Europe's ability to solve its sovereign debt crisis.
Paris announced the meeting yesterday after French bank shares were hammered this week. The global market rout suggested that investors had lost confidence in the ability of governments on both sides of the Atlantic to rein in their debts.
After a series of bailouts of debtor states that failed to restore calm, the two leaders are likely to discuss the need for regular eurozone summits to co-ordinate economic policy.
They may also explore more divisive ideas, such as expanding the bloc's rescue fund or issuing euro bonds.
Mr Sarkozy's office said the two leaders would meet in Paris at 2pm and hold a news conference and a working dinner.
The French leader said after an emergency summit of eurozone leaders on July 21 that Paris and Berlin would put forward joint proposals in August on improving the governance of the eurozone.
That summit, which agreed in principle on a second bailout for Greece and measures to halt contagion to larger economies, failed to calm market jitters.
On Sunday, the European Central Bank was forced to decide that it would buy Italian and Spanish bonds.
Mr Sarkozy held emergency talks with senior ministers on Wednesday, after France was hit hard by market turbulence, which has wiped some $4 trillion off the value of global stocks this month.
With markets losing faith in the eurozone, there have been calls for the bloc's EFSF bailout fund to be increased from its capacity of €440bn. However, both Berlin and Paris are reluctant to support this.
The European Commission is due to put forward ideas for a possible common eurozone bond in October, although the principle of joint debt issuance or guarantees remains anathema in Germany. Berlin opposes any 'transfer union', whereby wealthier eurozone countries would support weaker ones.
Nevertheless, some believe that Germany may have no choice over the long term.
"Right now, this is very difficult to swallow for German politicians. But if you look at the past 15-18 months, there were so many things German politicians say they would never do and they did it," German economist Peter Bofinger said.
He added: "I think within the next 12 months, we will have something like euro bonds. Whether it has a name or not doesn't matter. But we need this common mechanism because otherwise the risks of breaking up the euro area are too huge."