Sarkozy and Merkel call for economic union to save eurozone

Shall we dance?

France and Germany have set out plans to create the first “true European economic government” headed by a single appointed leader, as part of major moves to synchronise tax and spending to save the failing eurozone.

The French president, Nicolas Sarkozy, and German chancellor, Angela Merkel, announced the dramatic proposals after a two-hour mini-summit. They also called for the imposition of tighter restrictions on member country’s deficits and announced a synchronising of the tax policies of their own two countries. Sarkozy has also secured the support of Merkel for a Tobin tax – a financial tax on all international transactions – to raise funds to ease the crisis engulfing the European economy.

The establishment of an economic government for the eurozone will be regarded by eurosceptics as a political power grab for Europe. Nah – the beginning of a political power grab for Europe. There’s a small difference…

The European Council president, Herman van Rompuy, will be asked to head the new economic government, and will set and enforce a deadline for all 17 eurozone members to reduce their deficits, putting pressure on countries such as Greece and Portugal to shore up public spending.

Merkel said they had rejected for now the idea of euro bonds, which would have pooled the members states’ governments’ debts to reduce the overall risk of the eurozone,but neither leader ruled their use out in the future. George Osborne has raised euro bonds as a possible mechanism for shoring up the eurozone, but the idea was politically unpalatable in the German coalition. There was also no movement on the expansion of the zone’s €440 billion rescue fund, the European financial stability facility, seen by some as crucial to the future of the zone.

Merkel said all countries in the eurozone should enshrine balanced budgets in their constitutions. “I do not really think we can solve problems with stop-gap solutions,” she said.

Allowing mark-to-market accounting to bring the PIGS into the EU was a perfectly acceptable set of lies at the time. Acceptable to Merkel’s party, to the Tories and Blair’s tame Labour Party, acceptable our side of the pond to Uncle Sugar’s tame Democrats and Republicans.

A good time was had by all. Proprietary trades all round!