As euro reels, France and Germany push to rewrite the rules
France and Germany agreed on a joint strategy to stem the European debt crisis: Rewrite the treaties that govern the eurozone.
In a much-needed show of unity, French and German leaders offered a potential balm to Europe's battered economies ahead of a crucial make-or-break week for the European Union and for a yet uncertain global economic recovery.Skip to next paragraph
The Franco-German proposal suggests rewriting European treaties to enforce budgetary discipline by March 2012. The European Central Bank is also expected to lower loan rates on Thursday.
But the main event is the critical two-day EU heads of state summit that ends Friday, when leaders are expected to support the Franco-German plan to reestablish confidence in Europe.
Without that support, investors doubt European sovereign defaults can be avoided, something that could trigger a doomsday scenario for the continent: The collapse of the euro; a breakup of the EU; and a recession that would harm the economies of much of the rest of the world. Months of indecision, even after Greece, Ireland, and Portugal had to be bailed out, has undermined confidence that European governments would all be able to pay back their debts.
But even i they do agree, there is no guarantee of economic recovery or no further defaults. Rewriting treaties take a long time, and would come amid severe disagreements between eurozone members on the best financial plan of action for the Continent.
The situation became critical two weeks ago when the borrowing costs of Italy and Spain surged. Investors and global powers like China and the US were no longer reassured by political promises and demanded concrete measures to secure an exit from the crisis.
President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany are now trying to deliver real action. They represent the continent’s two biggest economies and populations, as well as a broader regional split between northern fiscally responsible and southern spendthrift countries. So far though the two have offered different recipes for the same malady, in a big part driven by their domestic political setbacks.
Global shares rose on the agreement and the cost of borrowing for peripheral countries, including Italy and Spain, continued to drop. Italy’s approval Sunday of its most severe austerity measures yet have fueled optimism, but the Franco-German consensus is the main drive, analysts said.