The leaders of the euro zone’s two biggest economies have vowed on moving to a more integrated Europe. But the business world was expecting more.
French President Nicolas Sarkozy and German Chancellor Angela Merkel held a crisis meeting to announce they would push harder to keep the euro and the monetary union strong.
Both countries agreed on holding twice-yearly meetings with euro zone leaders, with an elected president to represent the euro zone for a two-and-a-half year term. But not a word about euro bonds, or any quick fix to reassure the markets.
The leaders did ask their finance ministers to work on harmonising the corporate tax base and tax rates between the two countries, but this, although desirable, will take time.
France and Germany seem to have agreed on a sort of fiscal union and mandatory balanced budgets. Sarkozy and Merkel’s language also hinted that there will be no tolerance for breaking the rules.
However, the economic world once again thinks that the politicians are ‘talking the talk but not walking the walk’. Everybody knows that implementing these decisions will take years but the acute debt crisis needs quick and decisive action.
“In the long run European financial governance would be desirable, but the road to get there is incredibly long. Remember that the European constitution took two years to create, and this process would take even longer. It is not a short-term solution. The markets want to know now how Italy, Spain and other unstable countries can be stabilised,” says Baader Bank analyst Robert Halver.
As panic sales have wiped more than 2.5 trillion euros off global stocks just this month, investors were expecting more concrete steps to take the heat off. However, the leaders did not mention enhancing the European stability fund and completely dodged the question of euro bonds.
Euro bonds would help to reduce the borrowing costs of troubled economies but would also harm the leaders’ already fading popularities in their home countries.
With the recent sluggish economic growth figures the debt burden will continue to weigh on governments’ shoulders.