Together, both France and Germany have recently called for a common tax on corporations and financial transactions throughout the eurozone.
The policy would only apply to the eurozone initially, and would force countries like Ireland to raise their low corporation tax of 12.5%.
The proposal for common taxes came on Thursday, the day before a crucial EU summit in Brussels concerning the fate of the eurozone.
Both France and Germany, strong players in the EU, want changes to the EU treaties that would enforce budget discipline, effectively giving Brussels more control over sovereignty.
The UK has traditionally pushed against such measures, with some ministers urging David Cameron to consider repatriating some powers back from Brussels. The move for tax harmonisation is expected to stir up controversy, as the UK has been resisting common taxes across the 27 EU nations for years.
However, Merkel and Sarkozy jointly argue that the key to eurozone growth and competitiveness lies in the “convergence of the economic policies of eurozone members at least.” The implication is that other EU nations would follow suit over time.
In their letter to the European Council President Herman Van Rompuy, France and Germany called for a “new common legal framework” that would cover a range of things besides common corporation and financial transaction taxes.
Financial regulation was also on the list, as well as regulations that controlled the labour market within the eurozone.
London’s financial sector, a hub for Europe, will be protected by David Cameron at the summit. The Prime Minister has said that he will seek “safeguards” for financial services and fight for the UK’s interests if asked to sign a new EU treaty.
He has also argued against a common financial transaction tax, saying it would only work if it could be imposed globally.
He has also called it a “trick” to introduce a new fiscal agreement for the eurozone that does not require other EU members to agree. However, Merkel and Sarkozy have stated that the crisis “clearly exposed” the deficiencies in the eurozone’s contruction, and that they must be rectified with “a renewed contract between the euro area member states.”
Aside from the UK, other sceptics say that the proposing sanctions against countries who violate financial agreements will do nothing to keep eurozone countries in line. Critics say that rather than sanctions, the eurozone fiscal union needs “collective, democratic decision-making” rather than a France and Germany dominated process.