PARIS (AP)
-- The leaders of France and Germany are pushing all 17 nations that use the
euro to enshrine balanced budgets in their constitutions and want greater
collective governance of the eurozone.
 |
France's
President Nicolas Sarkozy, right, and
German Chancellor Angela Merkel gesture to each other prior to meeting at the Elysee Palace, Tuesday Aug. 16, 2011. (AP Photo: Philippe Wojazer, Pool) |
French
President Nicolas Sarkozy says he and German Chancellor Angela Merkel want a
"true European economic government" that would consist of the heads
of state and government of all eurozone nations.
The new
body would meet twice a year and be led by EU President Herman Van Rompuy.
Sarkozy and
Merkel presented their proposals after meeting Tuesday in Paris amid signs of
economic slowdown and after an exceptionally turbulent week on financial
markets prompted by concern about Europe's financial health.
THIS IS A
BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier
story is below.
PARIS (AP)
- The leaders of Germany and France are meeting Tuesday to discuss Europe's
debt crisis as new figures show their economies stalled even before the latest
bout of turmoil struck financial markets.
The meeting
between Angela Merkel and Nicolas Sarkozy in Paris comes after a week of huge
turbulence in financial markets, largely blamed on Europe's sprawling
government debts and worries that European leaders aren't doing enough to
address them.
Economic
growth in the 17 countries that use the euro sagged to a lackluster quarterly
rate of 0.2 percent in the second quarter, as a previously robust expansion in
Germany and France almost ground to a halt, according to figures from Eurostat,
the EU's statistics office.
Europe's
sagging growth prospects complicate the debt crisis, because slower growth
makes it even harder for governments to shrink debt. Less growth in Germany and
France - the two economic heavyweights of the eurozone - makes it harder for
those countries to serve as creditors and back increased bailouts, while a
slower economy also shrinks potential export markets for countries, like
Greece, mired in recession.
"The
longer the sovereign debt market remains stressed, the greater will be the
damage to the wider economy," said Lloyd Barton, senior economic advisor
to Ernst & Young. "A further deterioration in financial conditions
could severely damage the outlook for the whole of the eurozone."
The
downbeat growth news weighed on markets, and provided yet more evidence that
the global economy is slowing down sharply, following disappointing
second-quarter growth figures from the United States.
Financial
markets have been hugely volatile of late, partly over fears that Italy and
Spain, the eurozone's third and fourth largest economies, may find it too
expensive to service their debts. Those concerns triggered last week's
intervention in the bond markets from the ECB, which has increasingly stepped
in as Europe scrambles.
France and
Germany, which together account for almost half of the eurozone's economic
output, are taking the lead in pushing for reforms. But, speculation that the
two leaders would consider proposals for the eurozone to issue jointly
guaranteed government debt appear to have been dashed, with officials for both
sides indicating that would not be on the agenda.
Germany has
remained firm in its stance that other EU countries must exert more fiscal
discipline.
Though
officials for both Merkel and Sarkozy have said eurobonds would not be on the
agenda, analysts think Tuesday's meeting could set the stage for future
political decisions about the euro and European integration.
"Markets
have high hopes and few expectations," said Marc Ostwald, a strategist
with Monument Securities. "They hope that there's something that will
reassure and show decisive leadership."
That
something, he suggested, could be a step toward creating a watchdog that would
eventually oversee the implementation of eurobonds. The hallmark of the debt
crisis has been soaring yields, or interest rates, on the bonds of struggling
countries, as worried investors have demanded more and more to lend to them.
Higher
yields, at a minimum, make it difficult for countries to climb out of a cycle
of debt since they compound the amount owed. Sometimes yields soar so high that
they effectively bar countries from borrowing in the markets, as has happened
with Greece.
Some
observers have suggested that eurobonds are a solution to the crisis since they
would be backed by the eurozone as a whole and would thus paper over the
disparities among countries in the monetary union.
Meanwhile,
the chief of the International Monetary Fund urged rich-country governments not
to squeeze their budgets so far that they stifle growth.
"For
the advanced economies, there is an unmistakable need to restore fiscal
sustainability through credible consolidation plans," Christine Lagarde
wrote in the Financial Times. "At the same time we know that slamming on
the brakes too quickly will hurt the recovery and worsen job prospects."
France was
caught in the market crossfire last week, with investors worrying about the
financial health of the country's banks in particular and whether it would be
the next country after the U.S. to lose its triple-A credit rating.
McHugh reported from Frankfurt.
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