France, Germany to press euro zone treaty change

Tue Nov 22, 2011 6:49pm EST
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By Yann Le Guernigou and Eva Kuehnen

PARIS/BERLIN (Reuters) - French President Nicholas Sarkozy has embraced a German campaign for treaty change that could give European authorities intrusive powers to intervene in the national budgets of countries sharing the euro currency.

France and Germany will soon propose amendments to the European Union treaty in response to the bloc's sovereign debt crisis, Sarkozy said on Tuesday.

"With (Chancellor Angela) Merkel, we will soon make proposals on modifying the treaties to prevent countries from diverging in the budgetary, economic and fiscal areas," he told an Asian forum in Paris.

"We will do everything not just to defend Europe but also to consolidate it."

Treaty change in the EU is a fraught process. France has long defended its own national fiscal and economic sovereignty and its voters rejected a proposed EU constitution in a 2005 referendum.

But diplomats said Sarkozy has little alternative to going along with Merkel because France's top-notch AAA credit rating is under threat and the risk premium investors demand to hold French debt rather than German bonds is rising.

After a day when the borrowing costs of most of the weaker euro zone economies continued to rise inexorably, the President of the European Council, Herman Van Rompuy, called for "crisis measures" -- an apparent hint to the European Central Bank to take further action.

Sarkozy praised the ECB's role in buying limited amounts of euro zone bonds to calm markets but refrained from calling for more decisive intervention, in contrast to his finance minister.   Continued...