Weak growth figures have cast further doubt on the strength of the eurozone's economy as French and German leaders meet in Paris to discuss the bloc’s spiralling debt crisis. Ahead of the talks, Berlin ruled out the much mooted “euro bonds” option.
Watch FRANCE24 live at 6pm (Paris time) for the press conference between Germany's Angela Merkel and France's Nicolas Sarkozy.
French President Nicolas Sarkozy and German Chancellor Angela Merkel will have a challenging tête-à-tête Tuesday as jittery markets look for signs of leadership and stability amid a spiralling eurozone debt crisis. Further pressure was added Tuesday by the release of disappointing growth data from Germany and the eurozone itself.
The meeting in Paris follows the biggest drop on European stock markets since the 2008 crisis which shocked global markets last week. It also takes place amid the seemingly endless sovereign debt crisis and calls from other European countries for the adoption of a “euro bond”, a pooled “one for all and all for one” eurozone bond scheme.
An Elysee spokesman said on Monday that Sarkozy wanted to see an "acceleration" of reforms inside Europe's financial institutions and hoped he and Merkel could agree on "common positions on the reform of the governance of the eurozone."
But Merkel, responding to German voters, wants to avoid any further move towards what has been called a “transfer union” in which euro zone countries would be liable for each others' debts. As Europe’s largest economy, German taxpayers could expect to have to foot a hefty bill in that scenario.
‘No silver bullet’
Ahead of Tuesday’s meeting, a spokesman for the German delegation said the issue of “euro bonds” would not be on the table. This was later confirmed by the Elysée palace, prompting falls on the French and Spanish markets.
“Euro bonds are no silver bullet,” Deutsche Bank chief economist Thomas Mayer wrote in a note on Monday, adding that whatever the political decision, such bonds could not be put into play quickly. “The European Central Bank is the only stopgap in the current overly nervous market situation.”
Outside of Germany, however, support for centralising European government debt is gaining traction. Spain, Italy and Ireland are in favour of it, and even Britain’s conservative Finance Minister George Osborne has spoken in support.
“Solutions such as euro bonds or other forms of guarantees now require serious consideration,” Osborne told the UK parliament on Monday. “And they must be matched by much more effective economic governance in the eurozone to ensure fiscal responsibility is hard wired into the system.”
Growth stagnation concerns
Overshadowing the talks was weak economic data from France, Germany and the eurozone.
On Tuesday, Germany reported that during the second quarter of 2011 its GDP had increased by only 0.1%, compared to 1.3% during the first quarter (a figure that itself had been revised down from an initial estimate of 1.5%).
France also posted disappointingly weak GDP figures last Friday, with zero growth in the second quarter. In figures released Tuesday, eurozone growth was also down to 0.2% during the same period.
Jörg Lüschow, an analyst at German investment bank West LB, said Germany’s new figures were closer to European economic reality.
“This should be seen in counterpoint to Germany’s exceptionally strong growth in the first quarter,” he told FRANCE 24, explaining that low growth was a more realistic prospect for the country in the longer term.
“We can expect a further slowdown as the year goes on. And while these figures are disappointing, Merkel and Sarkozy will have much better things to talk about in Paris today – namely the debt crisis.”
Date created : 2011-08-16