German Chancellor Angela Merkel kicked off a key week of talks on saving the euro by laying out a vision for European “fiscal union”, as French and British leaders met before a pivotal EU summit.
French President Nicolas Sarkozy and British Prime Minister David Cameron yesterday held talks in Paris amid a diplomatic frenzy as EU leaders prepare for next Friday’s summit that is set to shape the bloc ’s future.
In an eagerly-awaited speech in the German Parliament, Ms Merkel said the stakes could hardly be higher, warning that the future of the euro was “indivisibly linked to the unification of Europe”.
Mr Cameron, whose country is not part of the 17-nation eurozone, seemed resigned to the treaty change that Paris and Berlin say is vital to solve the crisis, but warned he would use any tinkering to bring power back to London.
“If there is a treaty change, then I will make sure that we further protect and enhance Britain’s interests,” he said after a working lunch with Mr Sarkozy.
Earlier yesterday, Ms Merkel set out her vision for solving the eurozone debt crisis that has threatened to tip Europe, and the rest of the world, into a deep recession and has pushed the eurozone to the brink of collapse. Europe, she said, was “on the verge ” of creating a “stability union”, with greater budgetary discipline and checks, along with automatic punishments for countries that break the rules.
“Anyone who had said a few months ago that we, at the end of 2011, would be taking very serious and concrete steps toward a European stability union, a European fiscal union, towards introducing (budgetary) intervention in Europe would have been considered crazy,” she said.
Markets welcomed the speech, with European stocks sharply higher. Paris and Frankfurt clocked weekly gains of over 10 per cent on renewed optimism that leaders will get to grips with the debt crisis and moves by central banks to inject liquidity into financial markets.
Tensions on European bond markets also eased. But despite the more sanguine atmosphere, one analyst warned of the dangers of failure.
“The main players are in overdrive to come up with a comprehensive strategy to address the long-term issues,” said Juergen Michels from Citibank.
“Market pressure is growing, and the risk of another half-baked deal would likely be more detrimental for confidence, which would have a negative impact on economic activity,” he said.
Ms Merkel said she would be talking to “almost everyone” in the run-up to the summit and held talks with Austrian Chancellor Werner Faymann later yesterday.
US Treasury Secretary Timothy Geithner will also travel to Europe next week for talks with authorities focused on fighting the eurozone debt crisis, the Treasury Department said.
An EU diplomat said that the Brussels gathering, scheduled to run until next Friday afternoon, could well stretch into the weekend.
“What is absolutely necessary is to have a credible agreement for the EU but also for the markets, so we will not leave as long as we do not have a credible agreement,” the diplomat said.