France and Germany stand by eurozone plan

Angela Merkel and Nicolas Sarkozy at Paris meeting - 5 December Mrs Merkel and Mr Sarkozy said the eurozone needed a new treaty

France and Germany have reaffirmed their commitment to reform the eurozone, after ratings agency Standard and Poor's put most of the zone on "credit watch" over debt crisis fears.

The two countries said proposals for a treaty change agreed on Monday would reinforce governance of the eurozone.

They said their priority was to press ahead with the proposals.

S&P's move means six countries with top AAA ratings would have a 50% chance of seeing their ratings downgraded.

It was announced hours after French President Nicolas Sarkozy and German Chancellor Angela Merkel announced proposals they hoped would begin to restore confidence in the battered eurozone.

The ratings move came as a surprise to investors and saw stocks fall back on early gains as the euro also fell.

The BBC's Chris Morris, in Brussels, says there will be widespread anger at the timing of the agency's decision, which raises the stakes another notch ahead of an EU summit on Friday that is being seen as crucial for the future of the single currency.


Diplomats from some of the smaller member states say they need to have a look at the fine print of the Franco-German proposals, because they want to know exactly how they plan to make this work.

It was important, they believe, to have an aura of confidence and togetherness about them at the beginning of this difficult week, but of course that aura was rapidly punctured by the news from Standard and Poor's. So we're still at a very difficult position and there's no guarantee that all countries will automatically sign off on whatever France and Germany suggest.

There's a general feeling that some sovereignty will have to be handed over. The critical question is who to. The smaller countries and Germany would like the European Commission to have a role in that.

But France has always been suspicious of handing too much power to institutions in Brussels and would prefer to see those powers still in the hands of member states.

Ahead of the summit, US Treasury Secretary Timothy Geithner is arriving in Europe to hold talks with top financial officials in several countries. On Tuesday, he will hold a meeting at the European Central Bank in Frankfurt before meeting German Finance Minister Wolfgang Schaeuble.

Our correspondent says that many details of the French and German proposals have not been revealed and other countries will reserve judgement until they have seen them.

Ratings decision

On Monday, S&P's announced that it had placed its "long-term sovereign ratings" on 15 eurozone nations on credit watch "with negative implications".

The ratings agency said the decision was prompted "by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole".

As well as Germany and France, Austria, the Netherlands, Finland and Luxembourg also currently have top AAA rating.

S&P's announcement means that there is a one in two chance that those countries would see their credit rating fall within 90 days.

Franco-German proposals

  • Automatic sanctions for any country which runs up a deficit of more than 3% of GDP
  • "Golden rule" built into eurozone members' budgets against running a deficit
  • Private investors never again to be asked to take losses, as in Greece
  • European Stability Mechanism (ESM) brought forward from 2013 to 2012, with decisions based on a qualified majority not unanimity
  • Eurozone leaders to meet every month as long as crisis continues to discuss growth

Analysts also say S&P's move reflects uncertainty about what would happen were a larger eurozone country - such as Italy - to default in future.

The agency's decision is uncontroversial, says the BBC's Robert Peston, because eurozone banks have been struggling to borrow, a number of eurozone economies are buckling under the burden of big government and household debts and there is a significant risk of recession.

Mr Sarkozy and Mrs Merkel said they would "take note" of S&P's warning.

French Finance Minister Francois Baroin later said that - for its part - Paris did not plan to expand the austerity measures it had already has announced.

Speaking on French radio on Tuesday morning, Foreign Minister Alain Juppe said that Monday's plan was "precisely the response to one of the major questions of this ratings agency that mentions the insufficiency of European economic governance".

Eurogroup Chairman Jean-Claude Juncker, meanwhile, described S&P's move as "a wild exaggeration and also unfair".

"I am not unsettled by this, but I am astonished, after the significant efforts in recent days to overcome the crisis, such as savings programmes in Italy and Ireland," Reuters news agency quoted him as telling German radio.

Five crucial days for the euro

  • Monday: Nicolas Sarkozy and Angela Merkel propose tighter eurozone controls
  • Italian PM Mario Monti seeks parliamentary approval for his austerity package
  • Ireland's government unveils details of its proposed austerity budget
  • Tuesday: US Treasury Secretary Timothy Geithner arrives in Germany before travelling to France and Italy for talks with euro leaders
  • Wednesday: The talking continues as many EU leaders gather in Marseille for a European People's Party congress
  • Thursday: ECB's monthly policy meeting could produce new measures
  • Thursday and Friday: Crucial EU summit in Brussels to consider Sarkozy-Merkel plan

The only two countries not put on credit watch on Monday were Cyprus, which is already under review, and Greece, whose rating has already been severely downgraded.

'Structural changes'

At their joint press conference on Monday afternoon, Mr Sarkozy said things in Europe "cannot continue as they are" and that the Franco-German wish was for "a forced march toward re-establishing confidence in the eurozone".

"We are conscious of the gravity of the situation and of the responsibility that rests on our shoulders," he said.

Mrs Merkel said France and Germany were "absolutely determined" to maintain a stable euro and wanted to see "structural changes which go beyond agreements".

The two leaders said the treaty changes would ideally be implemented by all 27 EU member states, but that if that was not possible, just the 17 states which have adopted the euro.

Discussions on the changes should be concluded by March "because we must move quickly", said Mr Sarkozy.


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  • rate this

    Comment number 670.

    I just don't understand why more people aren't yelling from the roof tops and putting a stop to Germany's relentless march across Europe in their size 11 fiscal jackboots.
    They failed using force during the last century....twice.....let's just hope the pitiful and spineless French don't help them succeed this time.

  • rate this

    Comment number 669.

    I remember the 73 referendum

    Ted Heath conned us then and we've been conned ever since

  • rate this

    Comment number 668.

    We always knew which end of the Merkozy pantomime horse is in charge of the Euro.

  • rate this

    Comment number 667.

    @662. CymruLondoner
    "so must embrace or be on the poverty stricken periphery..."

    I think you're mistaking which parts of Europe have the worst poverty, seen what Ireland, Slovakia, Portugal, Spain, Italy, Greece, Belgium and others are like ?

    I'd rather be on the periphery with democracy and the 3rd largest european economy (soon to be 2nd) than in Italy, Spain or Greece's position

  • rate this

    Comment number 666.

    653. steve; What about a little word called 'DEMOCRACY' ? I voted for the 'common market' in 1973, I have never been given a chance since to right the wrong!

  • rate this

    Comment number 665.

    All 27 EU Countries have to ratify any changes to the EuroZone part of the Treaty as all Countries are affected by those changes is the latest coming out of Brussels. This is the largest justification yet that for a credible UK strategy and his own credibility, Cameron must give the UK electorate a referendum because there cannot be fiscal unity without political unity.

  • rate this

    Comment number 664.

    You have to admire German Arrogance on the Pitch,lol?

  • rate this

    Comment number 663.

    657.Cristobal Hempers

    Also further to your original post of blaming the south. Are you suggesting that no one north of Watford Gap has run up debt?

    Also what about those Northerners who work down south?

    Your post was so ridiculous, i can't believe that i have wasted responses on it

  • rate this

    Comment number 662.

    If the euro is here to stay we have to be in it. Why? Pre-2007 our currency was effectively pegged to the Euro at a rate of 70 p - 1 euro. 2011 how currency is effectively pegged at a rate of 85 p - 1 euro. Another 10 years and it will be 1 for ! and so on and so forth. Whatever the rights or wrongs we can't move ourselves geographically so must embrace or be on the poverty stricken periphery...

  • rate this

    Comment number 661.

    638. Ex Tory Voter

    We got proportionally more from the Marshall Plan that did Germany.

    They invested theirs in industry and infrastructure - we gave ours to the bankers who had convinced the Civil Service that propping up the all but dead Empire was a good idea. We never learn


    We did get more but then we ended up with a post war Labour government who wasted it.

  • rate this

    Comment number 660.

    The big 3 ratings agencies, Fitch, Moody's and S&P are American based because the USA has by far the largest and most diversified bond market in the world. When a government issues a bond, they are borrowing from the PRIVATE SECTOR, therefore if any governments want to borrow from the Private Sector, they have to abide by the rules of the bond market... or they could just shoot up taxes

  • rate this

    Comment number 659.

    @ Ms Riot.
    I can only assume from your rediculous posts that you have nipped over the border to The Netherlands and popped into a few coffee shops. ;)

  • rate this

    Comment number 658.

    623. Jason Mead

    So it's a "European Elite" that forced the highjest student fees in the EU on us; that is reforming the NHS without our consent; that took us to war in Libya; that is responsible for pensiopn reforms in the public and private sector. Take most of the key issues facing "ordinary people" in the UK and the EU barely features.
    You don't half sound like TMR.

  • rate this

    Comment number 657.

    647. Goonerforlife, just pointing out what happened in our history. It's been moderated now though, so it mustnt have happened. Did Chamberlain misplace his trust? Yes. Is history repeating itself? Yes

    P.S I don't dislike Germany in the slightest, I'd rather be German than English. Luckily my northern accent allows me to tell foreigners I'm Scottish when abroad

    648. bigmouthstrikesagain.


  • rate this

    Comment number 656.

    We need strong European leaders who will evict the un-elected parasites in Brussels, return the EU to a 'common market' and introduce measures to create industrial activity and manufacturing again in Europe. All the ridiculous legislation introduced by the EU should be scrapped ASAP.

  • rate this

    Comment number 655.

    Just an ignorant observation from one who doesn't really understand finance: how the Euro has improved its value against the pound since this conversation started.

  • rate this

    Comment number 654.

    @615 "It seems the EU cannot even uphold it's own laws regarding chickens & egg production, so HOW will they enforce new treaty rules?"

    Germany, France etc just ignore rules they do not like, Spain justifies vacuuming clear the seas around the UK by saying we can fish in their (emptied) waters too (the real reason Norway won't join). EU accounts not signed off for over a decade........

  • rate this

    Comment number 653.

    We must have a referendum.. The British people want to be in a euro trading group yes. We do not want more than that. We do not want Euro laws - we do not want enforced economic migration which is swamping us.
    If this is true kindly explain why Neither The Tories or UKIP, or indeed both put together received less than 38% of the votes cast at the General Election?

  • rate this

    Comment number 652.

    So Mr Cameron & Mr Clegg it emerges that changes to the Euro treaty on fiscal unity DOES require British approval. Do a Brown if you dare and you are committing GE suicide.
    638. Ex Tory Voter - So how does that detract from the original point that Germany was rebuilt using the Marshall Plan. All people are saying is that the Euro Economy is built on debt.

  • rate this

    Comment number 651.

    Why do I feel this has been 'engineered'?
    The EU is on the edge of a precipice and they only country that can solve the 'crisis' is Germany. If you dont agree with their proposal, tough, the EU (the world) economy will collapse, so.....just sign here. You have no option...
    We have been scammed and democracy overrun. They have won the battle but started a war which they cannot (and will not) win.


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