BERLIN AND Paris have attempted to paper over a deepening rift between German chancellor Angela Merkel and French president Nicolas Sarkozy over the euro debt crisis, with a joint plea from the two leaders for tougher financial regulation.
Amid increasing concern in Brussels at “dissonance” in the Franco-German relationship – the EU’s driving force – the leaders have written an open letter to commission chief José Manuel Barroso in which they seek swifter action to clamp down on speculation in the markets.
The correspondence received a frosty response, as high-level observers pointed to serious divisions between the two leaders over the measures required to strengthen the EU’s economic system.
“When Paris and Berlin do not agree, they call on Brussels to act,” said a senior Brussels-based official. “We must have missed the letter on economic governance.”
The letter from the two leaders follows the late cancellation on Monday of a planned meeting in Berlin at which Dr Merkel and Mr Sarkozy were to seek a common stance on new governance measures.
Amid unyielding pressure on the euro, this issue is set to dominate the agenda when EU leaders gather in Brussels for a summit this day week.
The meeting was rescheduled until next Monday, although the two leaders remain far apart.
“Franco-German co-operation is as close as ever,” said a German government source.
However, he acknowledged that the chancellor was opposed to Mr Sarkozy’s call for deeper fiscal co-ordination of the 16-member group of finance ministers who share the single currency.
The commission, the European Parliament and the European Court of Justice all operated on a 27-state basis, the German source said. As such there were no grounds to formalise a euro-only governance model.
Dr Merkel wants economic oversight in the wider 27-member EU to focus on deficit reduction. She wants tougher sanctions, changes to the EU treaties and says the new governance regime should include the option to move distressed countries into an orderly insolvency process.
In addition to their recent divisions over economic governance, Berlin and Paris adopted markedly different responses to the Greek debt crisis and the turmoil that followed in its wake. Dr Merkel was reluctant to intervene, saying Greece should first put its fiscal house in order. Mr Sarkozy – along with many top officials in the European Commission – advocated a much earlier intervention.
In addition, Berlin’s refusal to take measures to stimulate domestic economic demand has long caused frustration in Paris.
Dr Merkel has now embarked on an €80 billion austerity programme, a much bigger plan than that proposed by Mr Sarkozy, although the French deficit is more than twice the German one.
In their letter to Mr Barroso, the two leaders said “the return of high market volatility” meant the commission should “further speed up and intensify” work to regulate the market for insurance against sovereign default and other investment instruments.
Mr Barroso’s spokeswoman said the commission welcomed “the sense of urgency expressed by Paris and Berlin and the importance they attach to a co-ordinated European approach”.