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Lagarde and Merkel may be key to resolving debt crisis

New partnership on the cards as Sarkozy's future uncertain

ANGELA Merkel and Christine Lagarde met in Berlin for dinner last night as the IMF managing director began a whirlwind tour of Europe and the German chancellor resumed a series of diplomatic meetings ahead of this month's summit on the fiscal compact that aims to bring some sort of resolution to the eurozone crisis.

Ms Lagarde also held meetings with German Finance Minister Wolfgang Schaeuble and Economy Minister Philipp Roesler yesterday. The talks were private and the leaders did not hold a press conference afterwards.

European leaders appear confident that they will hammer out the final wording of the fiscal compact at the January 30 summit and sign the deal by the end of March.

This ambitious timetable will present a headache for Taoiseach Enda Kenny who may have to hold a referendum on the compact before signing it. Whether voters here agree to the compact, it is sure to come into effect as the approval of just eight countries is needed.

Ms Lagarde is scheduled to meet her old boss, French President Nicolas Sarkozy, in Paris today and then return to Washington tomorrow where she will be holding talks with the Hungarian government. The German and French leaders met on Monday.

Ms Merkel will meet meanwhile with Italian Prime Minister Mario Monti today to get to grips with the spreading debt crisis while Mr Monti will host the German and French leaders in Rome next week ahead of a meeting of eurozone finance ministers in Brussels three days later.

Analysts say that the relationship between Ms Lagarde and Ms Merkel could become the key to solving the eurozone crisis this year if the polls are correct and Mr Sarkozy loses the French presidential elections which will be held in April and May.

While Ms Merkel and Mr Sarkozy have polar-opposite temperaments and clashed frequently when the Frenchman first took power in 2007, they have developed an effective partnership after years of high-pressure crisis summits.


Government officials in Berlin say they are now worried about the end of "Merkozy", the most important relationship in Europe, in the middle of the crisis.

A cut in France's triple-A credit rating in the weeks ahead could also upset the delicate Franco-German balance, although some economists believe it could force the French to accept more far-reaching fiscal reforms, regardless of who wins the two-round election in April and May.

"It won't be Merkozy anymore. It will be Angela Merkel and Christine Lagarde dictating policy in Europe," said French economist Jacques Delpla.

"The next French president, whether it's Hollande or Sarkozy, won't have many options. The deficit will need to be cut, taxes increased and spending cut."

Irish Independent