Investors clearly are not persuaded by the intermittent efforts that Europe has made to protect major countries like Italy and Spain from the crisis, which started in smaller, more fragile economies like those of Greece and Ireland. The leaders of Germany, the mainstay of the euro zone, want a new treaty that would stop euro nations from posing a threat by running large deficits or amassing crushing debts, but France, the zone’s second-largest economy, believes that amending treaties would take too long to help now.
France, Germany and Italy are ready to agree on new rules and encourage more coordination of economic and fiscal policy, the French budget minister and government spokesman, Valérie Pécresse, said Sunday.
The idea would be “a governance with real regulators and real sanctions, that would give real confidence,” she told the television channel Canal Plus. “Germany, France and Italy want to be the motor of a Europe that is much more integrated, much more solid and with regulatory mechanisms that are virtuous, that don’t allow a cheater, so that there is no one who can exempt themselves from the rules that are set.”
When members make a complete commitment to the new rules, Ms. Pécresse added, “then European institutions will be able to play their full role,” including the central bank. The agreement would include as many as possible of the 17 European Union nations that use the euro, she said.
Still, it is unclear whether such an agreement would persuade the markets that the European Union, the central bank and fellow euro zone nations stand fully behind Italy and Spain, which both have new governments striving for austerity and structural reform. Meanwhile, signs are accumulating that the crisis is continuing to spread, including a weak German bond sale on Wednesday and a contraction in interbank lending in Europe.
Chancellor Angela Merkel of Germany has firmly opposed two ideas for solving the crisis: an expanded role for the central bank and new bonds to be issued jointly by the euro zone countries, known as eurobonds. But Germany has become increasingly isolated in its stand on the bank, as fellow deficit-hawk nations have wavered. The Finnish finance minister, Jutta Urpilainen, told reporters in Berlin on Friday that “if there is nothing else left, then we can think about strengthening the role of the E.C.B,” and the chancellor of Austria, Werner Faymann, told the APA news agency on Saturday that the bank could play “a stronger role.”
France agrees with Germany that eurobonds are a bad idea now, because they would put too much burden on the euro zone countries whose credit remains sound, though they may make sense once new budget strictures are in place and members are coordinating their policies more tightly. But the government of President Nicolas Sarkozy is frustrated with Mrs. Merkel’s refusal to allow the supposedly independent central bank to act as a lender of last resort, to lend to the new European bailout fund or to intervene more forcefully to hold down sovereign bond rates.
Bypassing the European Union treaty process may bring an outcry from European Union members like Britain that do not use the euro and that have warned against widening the gap between countries inside and outside the currency union. And there are worries that the euro zone itself will divide into a German-led fiscal-rectitude bloc and everyone else. A headline in the German newspaper Welt am Sonntag declared: “Merkel and Sarkozy Found a Club of Super-Europeans,” after what they described as secret talks over bilateral deals.
“There are no secret German-French negotiations,” a German government official said Sunday. “There is the previously announced, intense cooperation between Germany and France on proposals for limited treaty changes as the necessary political answer to the debt crisis.”
Though to some degree they go against the principles of solidarity and consensus in the 27-nation European Union, intergovernmental agreements among some but not all members have always been an option. A precedent is the Schengen agreement, allowing visa-free travel; it now covers 22 of the 27 members of the union and three nonmember nations.
Germany believes that the long-term answer to the crisis is to create “more Europe” and more federalism. That may mean setting up a common treasury and finance ministry for the euro nations, central intervention into national budgets, and more uniform pension and tax policies. Such a transformation would require a new treaty, which would take at least three years to draft and ratify, most analysts agree.
An intergovernmental agreement among the main countries of the euro zone could be reached much faster, and unlike a treaty, would not involve holding any national referendums.
Article source: http://feeds.nytimes.com/click.phdo?i=b9b94d084abfe7a121dc5e274379db51
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