By Helene Fouquet - Dec 2, 2011 2:23 AM GMT+0700
French President Nicolas Sarkozy said the 17-nation euro area would risk “exploding” if members fail to converge on fiscal policies.
The countries sharing the currency must prepare their budgets in common, narrow competitiveness gaps and face tougher automatic penalties for rule breaking, Sarkozy said today in Toulon, France, outlining proposals to overhaul Europe’s governing treaties.
“There can’t be a single currency without economies heading toward more convergence,” Sarkozy told 5,000 supporters in 50-minute speech in the Mediterranean port. “If living standards, productivity, and competitiveness gaps widen among euro-zone countries, the euro will sooner rather than later be too strong for some and too weak for others, and the euro zone will explode.”
German Chancellor Angela Merkel, who is due to speak to lawmakers in Berlin tomorrow, will come to Paris on Dec. 5 as the two nations prepare rule changes to stem the debt crisis. Sarkozy promised “more discipline” in Europe, responding to Merkel’s calls for more rigorous economic policies.
“More solidarity means more discipline,” Sarkozy said. “It’s the first principle of a reshaping of Europe.”
“France and Germany are fighting for a new treaty,” he added, without giving details on the agenda to start discussion on such a pact. He said the Maastricht Treaty that founded the euro was incomplete and had failed. Among governance changes, he said European decision making should move toward qualified majority voting to speed decision making.
No More Writedowns
Sarkozy said also that there must be no more euro-region debt writedowns beyond Greece. “It must be made clear that a debt of a euro member will be repaid,” adding that it was “a question of confidence.”
Discussion on treaty changes started between France and Germany after Sarkozy yielded to Merkel on Nov. 24 to stop pressuring the European Central Bank to step up its response to the region’s debt crisis.
Today in Toulon, the French leader said he has “no doubt that with the deflationary risk facing Europe, the European Central Bank will act,” while reiterating that the ECB is independent.
Sarkozy and Merkel will seek to rally their counterparts behind debt and deficit reduction at a Brussels summit next week. Changes may include greater control of euro nations’ budgets by European authorities and common fiscal policies.
To contact the reporter on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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