Merkel, Sarkozy vow faster euro action as crisis bites
Sarkozy - Merkel - Photo EU Council
(BERLIN) - The leaders of France and Germany vowed Monday to speed up various measures to ease the eurozone crisis, as the euro flirted with new lows on the market amid signs of heightened banking tensions.
French President Nicolas Sarkozy said after talks with Chancellor Angela Merkel that an agreement on stricter budgetary rules tying in all EU members except Britain should be signed by March 1.
Merkel said negotiations on a text were "progressing well" and announced Paris and Berlin could accelerate payments into a permanent fund for possible future bailouts that is due to come into force later this year.
"Germany and France are ready to review... to what extent our payments can be accelerated in a certain way and thus once again make our trust in and support for the eurozone clearly visible," she told reporters.
EU leaders are looking into ways of arming the fund, the European Stability Mechanism, with its resources in one go, rather than putting in smaller tranches under the current plan.
The meeting between the two, at the forefront of efforts to combat the eurozone debt turmoil, came as the euro tested near 16-month lows against the dollar, amid new fears over the future of the bloc.
"The situation is tense, very tense," acknowledged Sarkozy.
A recent slew of disappointing economic data, combined with renewed fears over the banking sector, have revived concerns that the eurozone is heading for a deep recession as the crisis shows little sign of easing.
Fuelling these fears, data earlier Monday showed banks parked a record sum of cash at the European Central Bank, suggesting they are wary of lending to each other in the critical interbank market.
And for the first time, Germany sold five-year bonds with a negative yield, implying investors are rushing for the relative safety of debt issued by Europe's top economy that has thus far proved resilient to the crisis.
Meanwhile the crisis also appeared to be returning with a vengeance to Athens, where it began, with the International Monetary Fund reportedly expressing growing doubts about Greece's long-term ability to reduce its debts.
A team of international auditors was due to return to Greece next week to assess the country's economy after Prime Minister Lucas Papademos warned of an "uncontrolled default" in March if no further aid was forthcoming.
Merkel called for the "rapid implementation" of reform measures in Greece, warning that new bailout funds could not be paid out otherwise.
Amid renewed speculation that Greece could be forced out of the euro, she nevertheless stressed: "It is our intention that no country should leave the eurozone."
Analysts were largely unimpressed by the meeting.
"The first Merkel/Sarkozy summit of 2012 produced little tangible results," said Christian Schulz from Berenberg Bank.
"The growth initiatives lack detail and negotiations on other elements are ongoing. At least on Greece they remain committed to help the country," added the analyst.
Merkel had sought to shift the focus from austerity to growth during the press conference.
"With a combination of solid finances and drivers of growth, we want to make clear that we are determined not only to maintain and stabilise the euro but also want a strong, modern and competitive Europe," said the chancellor.
Merkel hailed as a "good initiative" French plans to introduce a controversial tax on financial market transactions alone if necessary, but stressed she would prefer a broader approach.
"I find it a good initiative from the French side to say that we have to speed things up ... personally I could imagine such a tax in the eurozone," said Merkel.
Traders appeared to brush off the meeting, with stock markets turning down. London's FTSE 100 index of leading companies closed down 0.66 percent, while in Frankfurt the DAX 30 dropped 0.67 percent and in Paris the CAC-40 gave up 0.31 percent.
The euro struck a 16-month low at $1.2666 in Asian trading hours before the meeting, but later recovered in European trading to $1.2743, which compared with $1.2717 in New York on Friday.
The gathering in Berlin kicked off a flurry of diplomatic activity as European leaders seek to draw a line under the crisis.
Merkel and Finance Minister Wolfgang Schaeuble were to host IMF chief Christine Lagarde for closed-door "informal talks" in Berlin on Tuesday with the focus on Greece.
On January 20, Italian Prime Minister Mario Monti will host Merkel and Sarkozy in Rome, ahead of a meeting of eurozone finance ministers in Brussels three days later. An EU summit is due January 30.
Irish Prime Minister Enda Kenny said Monday he was confident of a positive outcome from the latest review of the country's implementation of financial reforms, on which release of more funds from its 85-billion-euro EU-IMF rescue package is dependent.
Meanwhile, Italy began a round of consultations on long-delayed labour market reforms that have been slammed by unions but are a key element of the government's plans to spur growth.