France and Germany agreed today to stop arguing in public over whether the European Central Bank should do more to rescue the eurozone from a deepening sovereign debt crisis.
President Nicolas Sarkozy and Chancellor Angela Merkel said after talks with Italian Prime Minister Mario Monti that they trusted the independent central bank and would not touch its inflation-fighting mandate when they propose changes of the European Union's treaty to achieve closer fiscal union.
They also demonstrated their confidence in Monti, an unelected technocrat, to surmount Italy's daunting economic challenges, in contrast to the barely concealed disdain they showed for his predecessor, media billionaire Silvio Berlusconi.
"We all stated our confidence in the ECB and its leaders and stated that in respect of the independence of this essential institution we must refrain from making positive or negative demands of it," Sarkozy told a joint news conference in the eastern French city of Strasbourg.
French ministers have called repeatedly for the central bank to intervene decisively to counter a market stampede out of eurozone government bonds, while Merkel and her ministers have said the EU treaty bars it from acting as a lender of last resort.
Sarkozy said Paris and Berlin would circulate joint proposals before a December 9 EU summit for treaty amendments to entrench tougher budget discipline in the 17-nation euro area.
Merkel said the proposals for more intrusive powers to enforce EU budget rules, including the right to take delinquant governments to the European Court of Justice, were a first step towards deeper fiscal union.
But she said they would not modify the statute and mission of the central bank, nor soften her opposition to issuing joint eurozone bonds, except perhaps at the end of a long process of fiscal integration.
French aides had hoped Berlin would relent in its opposition to a bigger crisis-fighting role for the ECB after Germany itself suffered a failed bond auction yesterday, highlighting how investors are wary even of Europe's safest haven.
"There is urgency (for ECB intervention)," Foreign Minister Alain Juppe told France Inter radio before the meeting.
Sarkozy took a step towards Merkel this week by agreeing to amend the treaty to insert powers to change national budgets in euro area countries that go off the rails. Juppe cautioned that treaty change could take years because of the need for 27 national parliaments to ratify it.
With contagion spreading fast, a majority of 20 leading economists polled by Reuters predicted that the eurozone was unlikely to survive the crisis in its current form, with some envisaging a "core" group that would exclude Greece.
German officials said the failed auction did not mean the government had refinancing problems and several analysts said Berlin just needed to offer a more attractive yield.
But it was a sign that, as the bloc's paymaster, Germany may face creeping pressure as the crisis deepens that may cause it to re-examine its refusal to embrace a broader solution.