President Nicolas Sarkozy was to host German Chancellor Angela Merkel and Italian Prime Minister Mario Monti in the eastern city of Strasbourg, as the 17-nation bloc struggles to reassure nervous bond markets.
Ahead of their arrival, Foreign Minister Alain Juppé repeated France’s call for the ECB to play an “essential role” in resolving the crisis, which has threatened to bankrupt governments and endangers the single currency.
“It is urgent,” he told France Inter radio. “The situation is serious. We must not underestimate its gravity. It touches even the most solid economies.”
French officials said the leaders would seek ways to “accelerate” reforms of its financial governance, as the crisis threatens to spread to Spain and undermining confidence in even the French and German economies.
“The ECB should play an essential role in re-establishing this confidence,” Juppé argued, while admitting that France and Germany had not been “entirely in agreement” on this point.
Sarkozy has an additional goal: with five months to go before he seeks re-election he has staked his credibility on France keeping its top AAA credit rating, despite warnings from agencies that it is under threat.
Germany, still seen as the strongest eurozone economy, has so far escaped the fury of the markets but its long-term economic health depends on its EU trading partners reducing their deficits and stabilising the economy.
France has talked up the Strasbourg meeting, which Sarkozy’s Prime Minister Francois Fillon has dubbed “very important”, but Monti dampened expectations, calling it “a very informal working visit” with “no agenda”.
Italy has criticised what deputy central bank governor Fabrizio Saccomanni complained is France’s and Germany’s dominance in the handling of the crisis, and former EU commissioner Monti has called for a European response.
Under Monti’s gaffe-prone predecessor Silvio Berlusconi, Italy lost much of the status that goes with being a G8 member and the eurozone’s third biggest economy, as it struggles under €1.9 trillion in debt.
By meeting with Merkel and Sarkozy in Strasbourg, one day after talks with EU leaders in Brussels, Monti hopes to regain some of Rome’s influence.
But France and Germany are far from united in their approach.
France and some other eurozone members feel that, if the ECB is allowed to monetise sovereign debt, its almost unlimited resources would finally end market speculation about potential defaults.
But Germany, with its bitter memories of inter-war hyperinflation, remains adamantly opposed to any measure that would appear to be simply printing more euros, undermining ECB independence and its inflation-busting mandate.
Germany is sticking by an agreement hammered out in Brussels on October 26th and 27th to expand the powers and capital of the European Financial Stability Facility — designed as a bail-out fund but too small to protect Italy.
Paris still hopes that Germany will back down over the ECB if the crisis worsens, despite Merkel’s many public protestations to the contrary.