ECB opens door to action, Sarkozy seeks new treaty

Thu Dec 1, 2011 5:25pm EST
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By John O'Donnell and Emmanuel Jarry

BRUSSELS/TOULON, France (Reuters) - The new head of the European Central Bank signaled on Thursday it stood ready to act more aggressively to fight Europe's debt crisis if political leaders agree next week on much tighter budget controls in the 17-nation euro zone.

In France, President Nicolas Sarkozy called for a new treaty incorporating tougher budget discipline, a European Monetary Fund to support countries in difficulty and decisions in the euro area taken by majority vote instead of unanimity.

Addressing supporters in the port city of Toulon, Sarkozy said he and German Chancellor Angela Merkel would meet next Monday to outline joint proposals to put to a December9 EU summit, seen as make-or-break for the 12-year-old single currency.

"Let us not hide it, Europe may be swept away by the crisis if it doesn't get a grip, if it doesn't change," Sarkozy said, warning that a collapse of the euro would make France's debt unmanageable and wipe out people's savings.

"We don't have the right to let such a disaster happen."

ECB President Mario Draghi painted a dark picture of the state of Europe's banking system, speaking a day after the world's major central banks took emergency joint action to provide cheaper dollar funding for starved European banks.

"A new fiscal compact would be the most important signal from euro area governments for embarking on a path of comprehensive deepening of economic integration. It would also present a clear trajectory for the future evolution of the euro area, thus framing expectations," he told the European Parliament.

Draghi did not spell out what action the ECB might take, saying only a commitment by political leaders to stricter budget discipline and binding their economies more closely "is definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters."   Continued...