Leaders push for eurozone plan
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China Daily, August 18, 2011
Leaders of France and Germany have pledged to further improve economic integration and governance in the eurozone by proposing a common economic government, a financial transaction tax at the EU level and the "golden rule" to reduce the members' deficit.
The "golden rule" is a fiscal-policy guideline that imposes strict limits on public spending and helps better control budget increases.
But commentators and market players worldwide showed no enthusiasm for the message delivered by French President Nicolas Sarkozy and German Chancellor Angela Merkel after their summit on Tuesday. They said they are disappointed because the measures fell short of shoring up confidence to avoid a further dip in the global and European economy.
The summit was held while the German economy, Europe's largest, almost stalled in the second quarter as the region's sovereign-debt crisis weighed on confidence. The Federal Statistics Office said on Tuesday German economy rose 0.1 percent during the second quarter, following a revised 1.3 percent growth in the first quarter.
But Sarkozy and Merkel vowed to stand shoulder-to-shoulder in defending the single currency amid the pressure to restore confidence in the eurozone following a dramatic market slump earlier this month and the US credit rating's downgrade to AA+ from AAA by Standard and Poor's.
The two leaders did not back joint euro bonds, seen by many as a solution to the eurozone's debt problems, saying this was only a longer-term option. They also stopped short of increasing the eurozone's rescue fund, which currently stands at 440 billion euros ($636 billion).
"We have exactly the same position on euro bonds," Sarkozy told a joint news conference with Merkel after their talks. "Euro bonds can be imagined one day, but at the end of the European integration process, not at the beginning," he said.
The two countries proposed taxing financial transactions, in a further rap to financial market players whose panic-selling earlier this month wiped some $4 trillion off global stocks and prompted a temporary ban in Europe on short-selling.
They called for a common economic government within the eurozone led by European Union President Herman Van Rompuy and set to incorporate discussion over a tax on financial transaction into the next European session after the summer break.
In addition, the two leaders also called on eurozone peers to adopt the "golden rule", approved in Germany and being considered in France, in a bid to reduce worries over the deficit and public debts.
The French-German proposals will be evaluated by Van Rompuy, who has been charged with assembling a plan for economic coordination to present at a EU summit in October.
European Commission President Jose Manuel Barroso hailed the move as an important political step. "A regular format and frequency for the eurozone summits, with a permanent chair, contribute to a more stable and stronger political leadership," he said in a joint statement with Economics Commissioner Olli Rehn.
Julian Callow, a senior European economist at Barclays Capital, said that while markets needed to see "more flesh on the bones" of the proposals, it was significant that the two leaders had broken into the August holiday period to meet.
"They are pledging a commitment to economic governance, which is a step forward, and there is also a commitment to a debt brake, although it remains to be seen whether that will be significantly strong," he said.
"Europe will continue to be on an overhang until the leaders come up with realistic policies," said Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments. "We've already got disappointing economic numbers out of Europe. Then, you have a program which is not really doing anything to address that."
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