Talk of EU Fiscal Union and ECB Participation Growing; Markets Like What They Hear

In a speech Thursday afternoon, French President Nicolas Sarkozy pledged that no other Eurozone country will be allowed to default and that France and Germany are leading the way to a fiscal union.

Sarkozy said France and Germany are working to ensure stability at the heart of Europe. The French President said the two countries "have decided to unite their destiny and to look to the future together".

Sarkozy announced that he and Germany Chancellor Angela Merkel will meet on Monday to make proposals to guarantee the future of the Eurozone.

Speaking on the hot topic of the cay – deeper fiscal integration – Sarkozy said every country must adopt a budget-balancing "golden rule", and the Eurozone must examine national budgets together, as integration will take place through intergovernmental cooperation.

Sarkozy said the ECB has a determining role to play, and was convinced that the risk of deflation would cause the ECB to act, but it is up to it to decide when and in which way.

The Telegraph reports the French president admitted that European infighting had led to markets and consumers being "paralyzed by fear" and vowed to stop the bitter arguments with Germany to ensure the euro is properly supported. "It must be made clear that a debt of a euro member will be repaid," he said. "It's a question of confidence."

StreetAccount notes that there had been a good deal of interest in Sarkozy's speech given concerns about French resistance to Germany's push for deeper fiscal integration and accompany enforcement mechanisms to deal with profligate sovereigns.

The WSJ reported recently that the biggest obstacle to a resolution of the crisis may now be in France rather than Germany. In addition, Reuters reported Thursday that Germany and France have not yet reached an agreement on key issues surrounding treaty changes, including the role of the EU executive and court.

Bloomberg reported early Friday that the European Central Bank was gearing up to lend money to the International Monetary Fund in a bid to ease the Eurozone debt crisis.

Reuters reports that on Friday, German Chancellor Angela Merkel called for rapid European Union treaty change to remedy the root causes of the Eurozone's debt crisis. However, Merkel also warned that Europeans faced a long, hard "marathon" to restore lost credibility.

Markets in both the U.S. and Europe have reacted positively to the reports.

 

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