France and Germany called on Monday for Europe’s leaders to agree on strict rules for fiscal discipline at their summit this week, as Standard & Poor’s threatened sweeping ratings downgrades if they fail to act to end the eurozone debt crisis.
The bold call by French President Nicolas Sarkozy and German Chancellor Angela Merkel for a rewrite of the EU treaty to set uniform tough budget standards across the eurozone raised hopes that the region might finally take decisive, comprehensive moves to end the crisis.
Sarkozy and Merkel appeared united and determined on Monday when they offered a new direction for the single currency zone as it teeters on the brink of collapse.
The two backed automatic sanctions against EU member states whose deficits go over 3 percent of GDP. They also called for a “reinforced and harmonized golden rule” on deficits, which could oblige some states to enshrine the commitment to balance their public finances in their constitution or legislation.
The new rules would be enshrined in a rewritten EU Treaty signed by all 27 EU members or, as an alternative, by just the 17 eurozone members with the other nations signing on a voluntary basis.
Sarkozy warned of a “forced march to reestablish confidence in the euro and the eurozone.”
“The goal that we have with the chancellor is for an agreement to have been negotiated and concluded between the 17 members of the eurozone in March, because we must move quickly,” he said.
The Franco-German proposal is to be detailed in a letter to EU President Herman Van Rompuy today.
IMF managing director Christine Lagarde on Monday welcomed France and Germany’s push for tough fiscal standards in the eurozone, but said more steps were needed to tackle the region’s crisis.
“It’s particularly appropriate that the European leaders and in particular President [Nicolas] Sarkozy and Chancellor [Angela] Merkel have decided that things have to really move, and say: ‘Something’s got to give,’” Lagarde said in a speech at the European Institute in Washington.
“And this at least beginning of compromise we see gradually shaping up is critical. It’s not in itself sufficient and a lot more will be needed for the overall situation to be properly addressed and for confidence to return, to not only markets, but to investors, to consumers, to those [companies] that have to set out their strategies for the next two, three or four years,” she said.
Meanwhile in Italy, its finances most at risk of failing in current market conditions, new Italian Prime Minister Mario Monti presented a tough austerity package of cuts, taxes and pension reforms to parliament, warning of a Greek-style “collapse” if it is not adopted.
In Ireland, Irish Prime Minister Enda Kenny announced a 3.8 billion euro (US$5.07 billion) austerity budget, a day after warning citizens to brace for years of economic hardship during a historic TV address.
Greece, on the other hand, got good news when the IMF released a much-needed 2.2 billion euros in bailout money after months of delay.
That is likely to be matched by 5.8 billion euros pending from the EU, seen as enough for the short term to help Athens avoid defaulting on its debt while it negotiates with commercial lenders.