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Nicolas Sarkozy, the French president and Angela Merkel, the German chancellor, meeting in the Palais de l'Élysée, Paris, Tuesday, Aug 16, 2011.
Angela Merkel, the German chancellor, and Nicolas
Sarkozy, the French president, on Tuesday agreed to establish a 'true economic
government' for the Eurozone, on a day when Germany, the biggest economy,
reported that economic growth had fallen to almost a standstill in the second
quarter of the year.
Following a two-hour meeting in Paris, the two
leaders address a press conference and the German chancellor reaffirmed that
eurobonds -- which would have bonds issued by the single currency area rather
than each individual country -- were not part of the solution. Rather, the goal
is to solve the debt crisis in a step-by-step fashion: "I do not believe that
eurobonds would help in that regard," she said.
The French president however said
eurobonds could be a possibility in the
future: "Perhaps one could imagine such bonds at some point in the future at
the end of a process of European integration. But not at the beginning" of
In the short-term, Germany would have to bear
higher interest costs before agreement with the other 16 countries of the
European Monetary System (EMU) had been reached on stricter rules of governance.
The two leaders also pledged to work on
integrating financial and economic policies; they proposed a tax on financial
transactions in the 17 Eurozone countries from the mid 2012, and they called for
closer joint governance of economic policy. They also proposed that work should
commence on moving towards a common corporation tax by 2013. A twice yearly
summit of Eurozone leaders would be held, and the economic government would be
led by Herman Van Rompuy, current president of the European Council.
Merkel said the goal is to "strengthen the euro as our common currency. In order for it to
succeed, we need a strong integration of finance and economic policies in the
She added, "The
euro is our future, it is the foundation of our prosperity. And it contributes
to our peaceful coexistence."
“We have to converge,” said Sarkozy. “The status quo is
The leaders also want all member countries of the
EMU to provide for balanced budgets as a constitutional requirement.
Merkel described the euro rescue fund, the
European Financial Stability Fund (EFSF), as a "European Monetary Fund,"
and she said it would be provided with "analytical
The Eurozone grew by only 0.2% in the second
quarter; German growth was flat and French growth was at a standstill.
Chancellor Merkel said she was not pessimistic
about economic prospects. She said she believed there would be significant
growth for the total year for both Germany and France.