Germany dampens hopes as France warns of euro ‘explosion’

by
December 8, 2011

By Michael Mainville | AFP

Economic powerhouse Germany played down hopes Wednesday that a crucial debt summit will save the euro as French President Nicolas Sarkozy warned the risk of a eurozone “explosion” was very real.

Piling the pressure on EU leaders due to meet in Brussels from Thursday, Standard and Poor’s put a number of large European banks on review and placed the European Union on watch for a downgrade of its AAA credit rating.

German officials said reaching a deal would be “difficult” as US Treasury Secretary Timothy Geithner pressed Europe for decisive action to tackle the crisis and US President Barack Obama spoke toGerman Chancellor Angela Merkel.

“Europe is not out of the crisis. The risk of an explosion abounds as long as the decisions taken with Angela Merkel are not implemented,” Sarkozy told lawmakers from his ruling UMP party, according to a participant in the meeting.

US stocks erased losses in the last hour of trade Wednesday to end mostly higher, but European stocks and the euro slid as pessimism set in.

On Monday, Sarkozy and the German chancellor announced comprehensive reform plans for the eurozone, having called for changes to the 27-member EU treaty to improve a eurozone framework generally seen as defective almost 10 years after the common currency was introduced.

Merkel and Sarkozy sent a letter to EU president Herman Van Rompuy on Wednesday to outline their plans for “reinforced governance” of the eurozone “to ensure budget discipline as well as stronger growth and increased competitiveness.”

They proposed a “new, common legal framework” to boost financial and labour market regulation, the harmonisation of the corporate tax base and the imposition of a tax on financial transactions.

In London, Prime Minister David Cameron said in parliament Wednesday that if Britain is asked to back a new EU treaty to breathe new life into the euro, he intended to exact a high price in return.

“The more that countries in the eurozone ask for, the more we will ask for in return,” he said.

Cameron also repeated his threat to veto any treaty change if Britain fails to receive “safeguards” from its European partners, particularly for the City of London financial services hub.

This week’s summit, where leaders will consider ways to improve budget discipline and tighten economic union, is seen as crucial to efforts to stop the debt contagion threatening the eurozone and to salvage the embattled single currency.

To read more, visit: http://news.yahoo.com/credit-warning-gives-eu-summit-last-chance-debt-053646538.html

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