German Chancellor Angela Merkel and French President Nicolas Sarkozy will propose changes to EU treaties that are designed to improve governance within the eurozone.
After their first meeting with new Italian Prime Minister Mario Monti, the three made the announcement, saying they were dedicated “to work along the same path.”
Sarkozy said that the purpose of the treaties was to promote “more integration and convergence” within the eurozone, which would in turn boost confidence in the bloc.
Merkel announced that they would not change the role of the European Central Bank (ECB). The ECB is the subject of hot disagreement between France and Germany, as they argue over whether it should be a lender of last resort and whether it should issue bonds backed jointly by the whole of the eurozone.
The three leaders, including Monti, made a picture of unity after their talks. Monti laid out his economic plans in talks with Merkel and Sarkozy, which include balancing the budget in 2013.
The country’s staggeringly high debt sits at 118% of economic output, but the country has had similar levels of this debt for 20 years. It is weak growth that is the real threat to the Italian economy, which then pushes the government’s interest rate for borrowing higher than is sustainable.
All of this is converging as analysts predict a critical moment coming up for the euro that will either push it forward or break up the 17-country bloc. That moment may well be now, as this week saw European Commission president Jose Manuel Barroso launch an enquiry into whether all 17 countries could jointly issue stability bonds.
The bonds will require greater scrutiny of the budgets and economic policies of all member states, and are opposed publicly by Germany.
Germany also opposes the European Central Bank taking a greater role in bailing out troubled economies.
Rather than monetary and bailout measures, Merkel has argued that political measures are necessary.
Her changes to EU treaties, though details are murky, have shown that she is making headway.
However, the consultation on eurobonds continues despite the argument by German leaders that the stability bonds would take pressure off of indebted countries to actively cut their debt. .