France’s jittery stock market dropped back into the red when a Berlin spokesman said the idea of creating eurozone bonds to spread the pain of member states’ debt problems would not be on the agenda in Paris.
Between them, Merkel and Sarkozy lead the 17-nation eurozone’s biggest economies, and markets are watching anxiously to see whether they can boost lender confidence amid an unprecedented sovereign debt crisis.
Last week European stock markets saw their worst losses since 2008, amid rumours that France might lose its Triple A credit rating, but Berlin remains opposed to deep reforms of the European financial system.
Sarkozy has been pushing to turn the debt crisis into an opportunity to forge a more centralised system of controls across the eurozone, better able in Paris’ eyes to protect against future meltdowns.
But Merkel — and German voters — oppose any bid to create what they dub a “transfer union”, in which Germany’s powerful export-led economy effectively underwrites its underperforming eurozone partners.
Such a system would make it easier for struggling members like Greece or Portugal to finance massive public deficits, but would also transfer some of the cost of servicing these debts to German taxpayers.
On the eve of the talks, a German spokesman said the idea of “eurobonds” to pool eurozone public debt would not even be on the agenda in Paris.
“The German government does not consider it worthwhile talking about eurobonds at the present time,” Steffen Seibert told reporters, briefly sending French stocks into the red before they recovered slightly.
“You are awaiting a rolling of the drums and the brightening of the skies over Europe,” he said, playing down hopes the talks will produce major developments. “There won’t be such a rolling of the drums at tomorrow’s meeting.”
The Elysee Palace later confirmed that bonds would not be discussed.
Until last week, France was seen as among the better performing eurozone economies, even if still lagging behind its German neighbour — but rumours, angrily denied, about a possible credit rating downgrade and the health of its banks rocked the market.
Sarkozy was forced to abandon his sacrosanct summer holiday at a Riviera villa with his pregnant wife Carla Bruni and fly back to Paris to propose tougher austerity measures, while Merkel remained tightlipped on holiday.
French officials say he still intends to press for an “acceleration” of reforms to Europe’s financial institutions and hopes he and Merkel will agree “common positions on the reform of the governance of the eurozone.”
He will also push for a quicker application of decisions made last month, when European leaders found another €159 billion for Greece and broadened the scope of their rescue fund to allow it to buy government bonds.
Over the weekend, German officials were quick to head off any talk of broader reform — rejecting both the idea of issuing joint eurobonds or of further expanding the €440-billion European Financial Stability Facility.
“There is no sharing of debts and not an infinite amount of aid,” Finance Minister Wolfgang Schaeuble told Der Spiegel. “There are support mechanisms that we will continue to elaborate under strict conditions.”
Merkel and Sarkozy are to meet in Paris in the afternoon, then hold a press conference before sharing a working dinner. Afterwards, they will make recommendations to European Union President Herman Van Rompuy, Seibert said.
Sarkozy will meet his own cabinet on Wednesday and next week, on August 24th, he is due to unveil a new round of austerity measures designed to bring France’s budget deficit down to less than three percent of its GDP by 2013.