Markus Schreiber, Photo
PARIS — France and Germany called on Tuesday for a "new economic government" for Europe, with mandatory balanced budgets enshrined in the constitutions of all euro zone members as a way to overcome the debt crisis that has threatened to fracture the continent's fragile common currency.
French President Nicolas Sarkozy and German Chancellor Angela Merkel's push for long-term political solutions instead of immediate financial measures like a single European bond sent the euro sliding.
Sarkozy and Merkel also proposed a Europe-wide tax on financial transactions and pledged to harmonize their countries' corporate taxes and in a move aimed at showing the eurozone's largest members are "marching in lockstep" to protect the euro.
Shares of financial markets operators, such as NYSE Euronext and the IntercontinentalExchange Inc., already under pressure as part of a broader sell-off of financial stocks, tumbled.
NYSE Euronext fell 10 percent, or $2.87, to $26.10, leading the S&P 500 Index in percentage losses. The IntercontinentalExchange was not far behind, falling 5.5 percent, or $6.33, to $110.10, the third biggest loser on the S&P.
Investors may be concerned about how the euro bloc will put in place what its leaders have suggested and how a proposed tax on financial transactions may affect demand for European assets, said David Gilmore of Foreign Exchange Analytics in Essex, Connecticut.
"On the surface, it sounds very bold, a federal 'eurozone,'" Gilmore said. "The practical part still seems, to me anyway, to be a pipe dream."
He said the plan to form a deeper fiscal union among the 17 countries using the euro "made the euro credible," but governments might not want to surrender their rights to set tax and budget policies.
But some analysts say only tighter fiscal convergence between the euro zone's 17 members, with the block's strongest members guaranteeing the debts of the weaker partners, will resolve a crisis that has dragged on for nearly two years and resulted in a string of sovereign bailouts worth hundreds of billions of euros.
Sarkozy and Merkel stressed their commitment to defending the common currency, a cornerstone of integration on this long-fractured continent. They presented their proposals after meeting Tuesday in Paris amid signs of economic slowdown, and after an exceptionally turbulent week on financial markets prompted by concern about Europe's financial health.
Sarkozy told reporters that he and Merkel want a "true European economic government" that would consist of the heads of state and government of all eurozone nations.
The new body would meet twice a year — and more in times of crisis — and be led initially by EU President Herman Van Rompuy for a 2½-year term. After that, Sarkozy suggested, it could be opened up to other heads of states and government.
The move appeared a step toward the closer long-term economic integration that many analysts have said is inevitable to make the euro experiment survive, though it was unclear how much effect it would have in the short term.
"There has to be a stronger coordination of financial and economic policy" to protect the euro, Merkel said.
Some were not impressed.
"Investors might be left wondering what was the point of this meeting," said Neil MacKinnon, economist at VTB Capital in London. MacKinnon said the measures outlined amounted to "well-intentioned rhetoric" but are not the "silver bullet" needed to settle Europe's debt and banking crisis once and for all.
The chancellor stressed that the crisis built up over several years by the actions of several member states, and there is no solution to tackle the crisis within days now.
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