French President Francois Hollande on Thursday called for the eurozone to adopt bold new mechanisms to insulate member states and their banks from market turmoil, such as a joint fund to pay down debt, putting him on a collision course with Berlin.
After a meeting with Italian Prime Minister Mario Monti in Rome, Hollande said he would urge EU leaders at a summit at the end of the month to adopt a series of measures to strengthen economic growth and financial stability in the eurozone and deepen economic integration.
Hollande said he had submitted details of his proposals to European Council President Herman Van Rompuy.
“We need imagination and creativity to find new financial instruments,” Hollande told a joint news conference with Monti.
“To deepen financial union, there are many options such as a financial transactions tax and joint debt issuance, including euro bonds, euro bills or a debt redemption fund,” he said.
The French leader, who took office last month calling for a change of direction in Europe away from German-inspired austerity, urged closer cooperation between member states on financial regulation to break the link between struggling eurozone states and their weakened banking systems.
He called for the bloc’s European Stability Mechanism, a permanent rescue fund that is due to start operation next month, to be given a banking license to allow it to borrow money from the European Central Bank to bolster its firepower.
Hollande’s bold proposals appeared to place him at odds with German Chancellor Angela Merkel, who on Thursday rebuffed pressure for Europe’s largest economy to underwrite debt or guarantee bank deposits in the eurozone, despite soaring borrowing costs in Italy and Spain.
Hollande has long advocated a growth pact for Europe including a financial transactions tax and joint bonds to finance infrastructure projects, more lending by the European Investment Bank (EIB) and more effective use of structural funds.
Hollande is due to present his a position at a four-way meeting with Monti, Merkel and Spanish Prime Minister Mariano Rajoy on Friday next week — a week ahead of the summit — and is hoping to make progress towards a consensus.
“The aim of June 22 is to have a four-way contribution and an agreement between at least two parties on a joint position. A four-way agreement would be fantastic,” a French source said.
France believes at least 100 billion euros, preferably more, are needed in structural funds, project bonds and new capital for the EIB, the source said.
The source also said there was no deadlock between Germany and France on the issue of mutualized debt in the form of euro bonds, which France wants to be implemented in the next few years.
Monti, whose government has found itself in the market’s sights despite undertaking reforms, voiced support for Hollande’s growth agenda and said bolder steps toward integration were required in Europe.
“We both agreed that the progressive improvements made to eurozone governance are not enough to shield the euro from market turbulence,” he told the news conference.
“We discussed some proposals for common bonds and we were very much in agreement on the need to increase investments that are productive for the economy — from the private sector, from the public sector and from private-public partnerships,” he said.