FRENCH PRESIDENT Nicolas Sarkozy is coming under pressure from within his own party to ease his resistance to a common euro zone guarantee for sovereign debt as talks resume on crisis in the single currency area.
While Mr Sarkozy has aligned himself with German chancellor Angela Merkel in opposition to this idea, two senior members of his UMP party suggest in a report on economic policy co-ordination that a common European treasury should be set up to pool the issuance of eurobonds for countries which respect EU budget guidelines.
The French leader insists such bonds may be contemplated only amid deeper economic policy co-ordination.
He has suggested that the elimination of tax competition in Europe would be a key condition of such convergence, something which would threaten Ireland’s closely guarded 12.5 per cent corporation tax rate.
The debate on eurobonds comes again to the fore as finance ministers and senior diplomats prepare to resume their deliberations on financial crisis.
Weaker EU governments believe eurobonds could bring the turmoil to heel but such a move would increase the borrowing costs of strong countries such as Germany.
With no let-up in tension on bond markets, European Central Bank chief Jean-Claude Trichet yesterday urged EU leaders to toughen their economic rules and said monetary policy was no substitute for “government irresponsibility”.
Although a French government spokesman said Mr Sarkozy did not officially support the proposals made by former minister Henri Plagnol and MEP Constance Le Grip, it was the president himself who asked them to examine how the single currency system could be strengthened.
“The development of eurobonds would allow the union to arm itself with a borrowing capacity that benefits from the best signature,” their paper said.
The document was published by the Elysée Palace, which said Mr Sarkozy will forward it to European Council president Herman Van Rompuy.
Mr Plagnol and Ms Le Grip said in their 39-page report that they consulted with dozens of senior figures in France, Germany, Spain, Portugal, Britain and the Netherlands, among them Mr Trichet and former European Commission chief Jacques Delors.
They also spoke with Luxembourgish prime minister Jean-Claude Juncker, one of the prime proponents of eurobonds among Europe’s leaders. Whereas Mr Juncker’s recent promotion of eurobonds met a frosty response from Dr Merkel, Mr Sarkozy has taken care to say his position “at the moment” is exactly the same as that of the chancellor.
Among 15 key proposals, the authors suggest that France and Germany should move first to create a European treasury, whose operations would later advance to embrace other countries which follow EU budget rules.
In some ways this mirrors Franco-German proposals to “converge” their tax systems, an initiative Mr Sarkozy says should be followed by other countries.
“We propose considering the possibility for the medium term of creating a body that would be put in charge of shared management of the debt of euro zone states, which is the logical follow-on to creation of the single currency,” said the Plagnol-Le Grip paper.
“At first, issues by the European treasury would be reserved to virtuous countries or limited to the amount of debt authorised under commitments to the stability pact.”