Germany and France will push for a broad treaty “refounding and rethinking the organization of Europe,” French President Nicolas Sarkozy has said.
He said that without some new “convergence” among European countries, the continent’s crushing debt could destroy the euro.
Sarkozy made the statements in the southern French port city of Toulon as he and German Chancellor Angela Merkel prepare to meet in Paris on Monday to try to lift Europe out of the debt crisis ahead of a major EU summit next week.
Earlier on Thursday, the head of the European Central Bank hinted that it now may be willing to take bolder actions to address the crisis that has rocked the continent.
“There can be no common currency without economic convergence, without which the euro will be too strong for some, too weak for others, and the eurozone will break up,” the French president said before several thousand sympathizers of his conservative party.
On Friday, Merkel will address Germany’s parliament about Europe’s financial crisis and the EU summit on December 9, which is expected to focus on how to make the eurozone more unified.
Merkel has acknowledged the need for treaty changes that impose stricter financial controls on eurozone countries to prevent them from taking on too much debt.
German Finance Minister Wolfgang Schaeuble told reporters in Berlin on Thursday there is now “a crisis of confidence” in the eurozone and that tough and credible new rules are needed to regain market confidence. Germany has said EU treaty amendments are required to do that.
Sarkozy spoke a day after the European Central Bank, the Federal Reserve and the central banks of Canada, Japan and Switzerland moved together to make it easier for commercial banks to borrow American dollars. It was a move intended to calm financial markets, which had grown increasingly worried about European debt.
Seventeen countries share the euro, with a further 10 completing the European Union. All 27 would have to approve a change in the Maastricht Treaty, which created the euro in 1999. Sarkozy said the treaty “has revealed itself to be imperfect.”
A disorderly breakup of the euro would devastate the world economy, analysts predict. It could cause banks to grow fearful and stop lending money to each other, which could trigger a replay of the stock market crash during the last global financial crisis, in 2008.
In addition, reduced economic output in Europe would hammer the economies of America and China, both of which depend heavily on Europeans to buy the things they make and export.
More than ever before, the ECB seems willing to consider bolder action to address the continent’s financial crisis.
A month ago, at his first news conference as ECB President, Mario Draghi said it was “pointless” for European governments to expect the bank to rescue them through massive bond purchases. That had been the same stance as his predecessor, Jean-Claude Trichet. But on Thursday, Draghi hinted that such expectations might not be futile after all.
Draghi opened the door to further ECB intervention ever so slightly in a speech to the European Parliament. He said the bank is prepared to play a bigger, yet limited role in the resolution of Europe’s debt crisis – but only after the eurozone countries tether their economies more tightly.