ECONOMY | 05.12.2011

Downgrade threat grows as Merkel, Sarkozy plan new EU treaty

 

The leaders agreed that a new treaty was necessary

Berlin and Paris have drafted a series of reforms to address Europe's sovereign debt crisis. Meanwhile, one credit ratings agency has threatened a downgrade for 15 eurozone countries, including both France and Germany.

 

German Chancellor Angela Merkel and French President Nicolas Sarkozy have agreed on a series of reforms aimed at saving the euro and enforcing fiscal discipline among eurozone members, the two leaders said Monday evening.

Hours later, leading credit rating agency Standard and Poor's warned that both France and Germany - as well as 13 other eurozone nations - were in imminent danger of losing their triple-A debt ratings.

Austria, Finland, Luxembourg and the Netherlands - which, like France and Germany, enjoy the highest possible credit rating - were also threatened with a downgrade on their long-term debt within 90 days.

The action was "prompted by out belief that systematic 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," a statement from the agency read.

The Wall-Street-based agency placed 15 countries on its "negative watch list"Merkel and Sarkozy plan to propose the creation of a new European treaty, to go into effect by the end of March. The leaders said they would present their plans to EU President Herman Van Rompuy on Wednesday, ahead of a critical summit of all 27 EU leaders in Brussels on Thursday and Friday.

Speaking at a joint press conference in Paris following lengthy talks, Merkel said that France and Germany were "absolutely committed" to stabilizing the euro and strengthening the competitiveness of the eurozone.

"We want to make sure that the imbalances which led to the situation in the eurozone today cannot happen again," said Sarkozy. "Therefore we want a new treaty, to make clear to the peoples of Europe, members of Europe and members of the eurozone, that things cannot continue as they are."

New treaty

The new treaty would include automatic sanctions for member states that violate the rules meant to keep deficits in check. "We want immediate sanctions in the event of non-respect for the rule keeping deficits below 3 percent" of gross domestic product, said Sarkozy.

He added that they would prefer a treaty agreed by all 27 members of the European Union, but said they would also accept a treaty signed by just the 17 countries that use the common currency.

Merkel said the European Court of Justice must be able to verify that national eurozone budgets conform with the proposed new anti-deficit rules.

Italian PM Monti unveiled tough austerity measures Monday in an attempt to calm markets"The European Court of Justice will not be able to declare a national budget null and void," she said. But, she added, the court will check to see whether the plans "correspond with a real undertaking to return to a balanced budget."

Eurobonds 'not a solution'

Merkel and Sarkozy were also in agreement on the controversial subject of eurobonds, saying they were not a solution to the debt crisis.

"Germany and France are in complete agreement to say that eurobonds are in no case a solution to the crisis," said Sarkozy. "How can we convince others to make the efforts we are making ourselves if we pool our debts as of now? None of this makes any sense."

Merkel and Sarkozy also said they would propose bringing forward the introduction of the European Stability Mechanism, scheduled for 2013, to the end of next year.

In an effort to get the crisis under control, Sarkozy said both countries wanted to have summits with eurozone leaders "every month, as long as the crisis lasts," along with monthly meetings with "precise agendas."

Nine eurozone countries with credit ratings lower than triple-A were also placed on the Standard and Poor’s "negative watch list" late on Monday. Cyprus and Greece, which already suffer from poor credit ratings, were the only eurozone countries not to be threatened with a further downgrade by the agency.

Author: Martin Kuebler (AP, AFP, dpa, Reuters)
Editor: Andreas Illmer

 

 

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