President Sarkozy: “All three of us are determined to work along the same path”
24 November 2011 Last updated at 17:21
Germany’s Angela Merkel and France’s Nicolas Sarkozy are to propose modifications to EU treaties designed to improve governance of the eurozone.
The announcement came after their first meeting with Italian Prime Minister Mario Monti since he took office.
Mr Sarkozy said they would “propose modification of treaties to improve eurozone confidence so there is more integration and convergence”.
Mrs Merkel said they would not change the role of the European Central Bank.
The modifications are to be proposed over the next few days, but no details have yet been released.
France and Germany disagree about whether the ECB should act as lender of last resort and whether bonds should be issued by the whole of the eurozone instead of individual countries.
Mr Monti laid out his economic programme to his French and German counterparts, including undertaking to balance Italy’s budget in 2013.
At 118% of annual economic output, Italy has a high level of overall debt, but the country has managed to service similarly high debt levels for the past 20 years.
The main problem with the Italian economy is weak growth – the country has averaged 0.75% growth a year over the past 15 years.
The yield on Italian 10-year bonds has jumped back above 7%, which is seen as the point at which the cost of borrowing becomes unsustainable.
It had dropped below that level the day after Silvio Berlusconi stood down.
The three leaders have agreed to meet again in Rome soon.
The meeting came a day after a German bond auction failed to raise the target amount.
On Wednesday, Germany sold just 3.6bn euros ($4.8bn; £3bn) worth of 10-year bonds, from 6bn euros on offer.
In an unusual move, Germany’s central bank, the Bundesbank, said on Thursday that reports it had bought up some of the remaining bonds were incorrect.
“We do not finance the government, that is absolute rubbish,” Bundesbank board member Joachim Nagel told the Reuters news agency.
In an official statement, the bank said: “The Bundesbank serves as a technical service provider in the issuance of federal government bonds and does not hold any German government bonds on its own account.
“Underbiddings have occurred from time to time in recent months and cannot be seen as a general mistrust in government securities”.
It said bonds that were not taken up by investors in an auction were sold later on the secondary market.
“In my conversations with analysts, traders and officials I’m finding more and more of them are talking about the end game for the euro. Not the end, necessarily, but a moment of truth very soon that will either force a big leap forward, or a wrenching break-up,” said BBC economics editor Stephanie Flanders.
“Even Germany cannot be a safe haven if this crisis goes critical.”
On Wednesday, European Commission president Jose Manuel Barroso launched a consultation on whether the 17 eurozone countries could issue joint stability bonds.
But Mr Barroso stressed that the creation of the bonds would require much greater scrutiny of the budgets and economic policies of individual members.
Germany opposes both the issuing of joint bonds and greater involvement for the European Central Bank (ECB) in bailing out troubled economies.
Its government is concerned that joint bonds would reduce pressure on member states to reduce their debt burdens.
On Thursday, French Foreign Minister Alain Juppe said that it was important that the ECB should be allowed to intervene in the debt crisis.
“It’s urgent. It will be discussed this very day in Strasbourg,” he told France Inter radio.
Gavin Hewitt, the BBC’s Europe editor, said that Mr Sarkozy and Mrs Merkel seem to have made “a truce” on the role of the ECB.
There was, he said, “a deal to agree to disagree. President Sarkozy said that in order to ensure the independence of the ECB ‘no positive or negative demands should be made of it.’ That seemed to be a temporary declaration of a cease-fire between France and Germany.”
Also on Thursday, Portugal had its debt rating cut by Fitch to so-called “junk” status, and warned it could be cut again.
Fitch made the downgrade because of its “large fiscal imbalances, high indebtedness across all sectors and adverse macroeconomic outlook”.
Portugal, along with Greece and the Irish Republic, has received bailout funds from the eurozone.
The news came as a 24-hour general strike in Portugal brought the country to a halt in protest against austerity measures.