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Sarkozy to give euro crisis speech

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08:59 CET+01:00

President Nicolas Sarkozy will try to reassure anxious voters, markets and European allies that he is on top of the financial crisis on Thursday in a keenly awaited landmark speech.

 

The French leader will travel to the port city of Toulon where, just over three years ago, he gave a major economic address during the previous 2008 credit crunch, vowing to "re-found global capitalism".

The speech comes as rating agencies are reconsidering France's "AAA" debt rating and just ahead of a major European summit on December 8th and 9th billed by some as a last chance to save the eurozone from financial collapse.

Sarkozy spoke to his German and Dutch counterparts Chancellor Angela Merkel and Prime Minister Mark Rutte on Wednesday by telephone, and meets Britain's Prime Minister David Cameron on Friday in Paris.

European leaders have vowed to contain the debt crisis spreading north from the debt-ravaged economies of Greece, Spain and Italy, but they are divided over strategy and have failed to convince bond markets.

The European Commission and the OECD have warned of a return to recession across the continent, and France is in dire straits. Growth and domestic demand has stagnated, and unemployment is at a 12-year high.

"It's an existential crisis for Europe," French Foreign Minister Alain Juppé said in an interview with the newsweekly L'Express.

Paris would have liked to stifle the debt crisis by unleashing the European Central Bank, allowing it to threaten to issue euros to buy primary sovereign debt and bring down the record bond yields faced by weaker states.

But Merkel has stood adamantly against the idea -- anathema in a Germany still haunted by memories of interwar hyperinflation -- and Europe appears to be stumbling towards some kind of IMF-led bail-out.

While French and German officials battle against each other behind the scenes, Sarkozy and Merkel have attempted to play down their differences in public, vowing to present their EU colleagues with a plan next week.

Thursday's speech will be scrutinized for clues as to what this might be, with leaders like Italy's prime minister Mario Monti warning that markets will punish any failure to agree a plan in Brussels on December 9th.

Sarkozy's government spokeswoman, budget minister Valérie Pécresse, said France would be ready to support German calls for treaty changes to place EU member states' national budgets under Brussels' scrutiny.

"We're working on a proposed pact, with more discipline in the euro zone," she said. "With at the same time more solidarity within Europe, with stronger institutions that can intervene more efficiently."

It is this "solidarity" that is proving the sticking point. Merkel has refused to countenance a broader ECB mandate to allow it to become a lender of last resort or to issue joint eurobonds to pool sovereign debt.

In Paris, officials said these discussions were ongoing and the proposed pact not "ripe". One senior figure lamented "Merkel does not act until she reaches the precipice."

Amid all the ongoing discussions with his partners, Sarkozy is not free to outline a final plan to end the crisis in Toulon, and will instead set out to explain the problem to his compatriots.

Previous appearances on major themes in recent weeks, in which he has posed as a dynamic captain guiding the ship of state through rough economic waters, have seen him gaining some traction in opinion polls.

But voters are not bond markets, who will prove tough to reassure, and the polling agencies still predict he will lose office to Socialist challenger François Hollande in May next year.

 

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