EU giants vow to defend currency

Germany, France seek body for collective economic governance.

MARSEILLE, FRANCE // An emergency Franco-German summit ended last night with a pledge to defend the euro but no agreement on issuing new government bonds to ease the region's debt crisis.

The French president, Nicolas Sarkozy, and the German chancellor, Angela Merkel, proposed a system of collective economic governance in the 17-nation euro zone as part of a "step by step" strategy to rebuild confidence.

The body, led by Herman Van Rompuy, the Belgian president of the European Council, would sit at least twice a year, seeking "true European economic government" with membership drawn from the governments of all euro-zone nations.

But Mr Sarkozy and Mrs Merkel, speaking after their two-hour talks at the Elysee Palace in Paris, ruled out the "miracle cure" of euro bonds to help the zone cope with its crisis.

They will press all euro-zone nations to make budgetary parity a "golden rule" enshrined in their constitutions. Plans will also be put forward for a zone-wide tax on financial transactions.

The euro made a brief recovery against the dollar in trading immediately after the leaders' comments but slipped back later as a sign of continuing trading jitters.

The markets have been turbulent for the past week amid mounting concern over euro-zone debts.

These worries were aggravated even as the two leaders prepared to meet when figures showed a significant fall in growth from April to June, adding to fears the world could be heading back into recession.

The European Union said the economy in the euro zone had grown by 0.2 per cent in the second quarter, a quarter of the rate in the first three months of the year.

Germany, despite being Europe's largest economy, recorded especially disappointing growth of only 0.1 per cent.

Despite officials' attempts to play down the importance of the Paris summit, the markets were closely watching what had been billed as a make-or-break talks on the future of the euro.

"We want to express our absolute will to defend the euro and assume Germany and France's particular responsibilities in Europe, and to have complete unity of views on all of these subjects," Mr Sarkozy said after the talks.

* With Reuters

Published: August 17, 2011 04:00 AM


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