French President Nicolas Sarkozy will host German Chancellor Angela Merkel and Italian Prime Minister Mario Monti – who took office last week after concerns over Rome’s reform plans forced out his predecessor Silvio Berlusconi.
Together they will seek ways to “accelerate” the 17-nation bloc’s bid to calm bond markets by undertaking reforms of its financial governance, as the crisis threatens to spread to Spain and the eurozone core.
Sarkozy has an additional goal: with five months to go before he seeks re-election he has staked his credibility on France keeping its top AAA credit rating, despite warnings from agencies that it is under threat.
Germany, still seen as the strongest eurozone economy, has so far escaped the fury of the markets but its long term economic health depends on its EU trading partners reducing their deficits and stabilising the economy.
France has talked up the Strasbourg meeting, which Sarkozy’s Prime Minister
Francois Fillon has dubbed “very important”, but Monti dampened expectations,
calling it “a very informal working visit” with “no agenda.”
Italy has criticised what deputy central bank governor Fabrizio Saccomanni complained is France’s and Germany’s dominance in the handling of the crisis, and former EU commissioner Monti has called for a European response.
Under Monti’s gaffe-prone predecessor Berlusconi, Italy lost much of the status that goes with being a G8 member and the eurozone’s third biggest economy, as it struggles under €1.9 trillion in debt.
By meeting with Merkel and Sarkozy in Strasbourg, one day after talks with
EU leaders in Brussels, Monti hopes to regain some of Rome’s influence. But France and Germany are far from united in their approach.
On Wednesday, Sarkozy’s Finance Minister Francois Baroin repeated his call for Germany to relax its opposition to authorising the European Central Bank to declare itself Europe’s lender of last resort.
France – and many other eurozone members – feels that, if the ECB is allowed to monetise sovereign debt, its almost unlimited resources would finally end market speculation about potential defaults.
But Germany, with its bitter memories of inter-war hyperinflation, remains adamantly opposed to any measure that would appear to be simply printing more euros, undermining ECB independence and its inflation-busting mandate.
Germany is sticking by an agreement hammered out in Brussels on October 26 and 27 to expand the powers and capital of the European Financial Stability Facility – designed as a bail-out fund but too small to protect Italy.
Paris still hopes that Germany will back down over the ECB if the crisis worsens, despite Merkel’s many public protestations to the contrary.