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He said the plan to form a deeper fiscal union among the 17 countries using the euro “made the euro credible,” but governments might not want to surrender their rights to set tax and budget policies.
But some analysts say only tighter fiscal convergence between the euro zone’s 17 members, with the block’s strongest members guaranteeing the debts of the weaker partners, will resolve a crisis that has dragged on for nearly two years and resulted in a string of sovereign bailouts worth hundreds of billions of euros.
Sarkozy and Merkel stressed their commitment to defending the common currency, a cornerstone of integration on this long-fractured continent. They 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.
The new body would meet twice a year — and more in times of crisis — and be led initially by Van Rompuy for a 2½-year term. After that, Sarkozy suggested, it could be opened up to other heads of states and government.
The move appeared a step toward the closer long-term economic integration that many analysts have said is inevitable to make the euro experiment survive, though it was unclear how much effect it would have in the short term.
“There has to be a stronger coordination of financial and economic policy” to protect the euro, Merkel said.
Some were not impressed.
“Investors might be left wondering what was the point of this meeting,” said Neil MacKinnon, economist at VTB Capital in London. MacKinnon said the measures outlined amounted to “well-intentioned rhetoric” but are not the “silver bullet” needed to settle Europe’s debt and banking crisis once and for all.
The chancellor stressed that the crisis built up over several years by the actions of several member states, and there is no solution to tackle the crisis within days now.
“We will regain the lost confidence,” she said. “That is why we go into a phase with a new quality of cooperation within the eurozone,” she added, referring to the proposal of forming a permanent economic government for the eurozone.
The leaders want the new budget rules to be enshrined in euro zone constitutions by summer of next year. They said the common French-German corporate tax would be established by 2013.
The two leaders ruled out, however, issuing common government debt in the form of eurobonds, at least for now, despite demand by many investors for such a bold but politically difficult move.
Sarkozy said that euro bonds could be considered “one day, but at the end of a process of European integration, not at the beginning.”
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