Sarkozy, Merkel press debt plan with EU allies

By Jamey Keaten

Associated Press

Published: Thursday, Dec. 8 2011 12:00 a.m. MST

German Chancellor Angela Merkel, left, and France's President Nicolas Sarkozy, right, shake hands at the end of their joint news conference at the Elysee Palace, Paris, Monday, Dec. 5, 2011. Sarkozy and Merkel sought Monday to present a unified plan to tighten oversight of government budgets - a key step ahead of a European Union summit later this week to try to save the euro.

Michel Euler, Associated Press

Enlarge photo»

MARSEILLE, France — The leaders of France and Germany tried to rally fellow European conservatives Thursday around their latest bid to save the euro currency from collapsing under the weight of huge government debts.

German Chancellor Angela Merkel and French President Nicolas Sarkozy were meeting with heads of state and government from the center-right European People's Party in this Mediterranean port before moving on to Brussels for a crucial EU summit, with the 17-nation eurozone's fate in the balance.

The two sought backing for their plan to have eurozone nations submit their national budgets to much greater scrutiny. The Standard & Poor's rating agency injected urgency into those talks by warning it may downgrade the EU, just days after it threatened to lower its rating for 15 of the 17 euro nations.

"The longer we delay, the more costly and less productive the solution will be," Sarkozy told party members in this southern French port. "If we don't have an agreement Friday, there won't be a second chance."

Their plan seeks to enshrine tougher budget oversight in the existing EU treaty or alternatively, create a new one for the 17 nations that use the euro that other European nations could opt in to. It proposes automatic sanctions for breaking strict budget rules and a requirement to balance national budgets.

European Commission President Jose Manuel Barroso tried to project optimism Thursday morning that a deal to save the euro was in reach.

"I believe this is possible. My appeal — my strong appeal — to all the heads of state and government is to show this commitment to our common currency. I think this is indispensable, and leadership is about making possible what is indispensable," Barroso said.

Markets have mostly risen since last week on hopes that an agreement among European governments on the Franco-German plan would pave the way for the European Central Bank to intervene more aggressively to support eurozone bond markets. But investor optimism was deflated Wednesday after a German official said it could take up to Christmas to clinch a deal.

The head of the eurozone finance ministers said Thursday that leaders hope to get all 27 European Union countries on board with treaty changes this week.

"A treaty of all 27 members is to be hoped for, but if there are countries that don't want to accompany us in our search for a better European architecture then we'll go with a treaty of 17," Jean-Claude Juncker, the Luxembourg prime minister, told French radio France-Info.

Analysts said the summit was do-or-die for the eurozone.

"The politicians face a very stark choice between reaching an agreement that tees up the ECB to continue buying (bonds) and helping to restore confidence generally by their words and actions, or failing to agree and risk losing control of the situation, which could lead to a depression or worse," said Gary Jenkins of London's Evolution Securities.

The European Central Bank cut its key interest rate again Thursday by a quarter point to 1 percent to spur a slowing eurozone economy and said it was making more credit available to banks that are struggling because of the eurozone government debt crisis.

An alternative to support from the ECB could be greater help from the International Monetary Fund. Some European leaders have said their national central banks could lend money to the IMF, which could act as a backstop for financially weak eurozone countries.

A European Union diplomat said eurozone leaders are likely to agree to give the IMF €150 billion ($200 billion) in bilateral loans to use as a firewall in the debt crisis. The money would come from the central banks of the 17 euro nations, not governments, which are already highly indebted.

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