French President Nicolas Sarkozy and German Chancellor Angela Merkel are calling for a new European Union treaty to control spending, in an effort to end Europe's debt crisis and save the continent's euro currency.
The two leaders said after meeting in Paris Monday they want all 27 EU nations to agree that national government budgets would be reviewed by the European Court of Justice and the countries automatically penalized if they violate spending rules. Their goal is to keep budget deficits in check and avert the need for more international bailouts like those already secured by Greece, Ireland and Portugal.
But Mr. Sarkozy and Ms. Merkel said they also would agree to the new budget controls even if they are only adopted by the 17 nations that use the euro. Mr. Sarkozy said the eurozone nations should adopt the changes by the end of March.
The plan will be presented to other European leaders ahead of the start Thursday of a two-day summit to discuss resolution of the debt crisis.
Mr. Sarkozy said it was important for Germany and France to take the lead in resolving the crisis.
Ms. Merkel said the proposed reforms would prove that Europe can take the measures necessary to retain its economic standing.
Both leaders, however, rejected a call by some financial analysts for the sale of euro-based bonds to help weaker governments by lowering their borrowing costs. Germany and France, with the continent's strongest economies, fear their borrowing costs would increase with the use of continent-wide bonds, while debt-ridden countries would have no incentive to curtail excessive spending.
Mr. Sarkozy said he thinks it would be odd to create such financial securities.
U.S. Treasury Secretary Timothy Geithner is headed to Europe Tuesday to prod the continent's leaders to take decisive action. U.S. leaders fear a collapse of the monetary union could sharply diminish the sluggish U.S. economic recovery and send the world economy into a renewed recession.
Geithner is planning to meet in Frankfurt with European Central Bank President Mario Draghi and Bundesbank President Jens Weidmann. Later in his three-day trip, he is planning to talk with Mr. Sarkozy, new Italian Prime Minister Mario Monti and Spanish Prime Minister-elect Mariano Rajoy.
Despite their common push for centralized control of government spending plans, both Mr. Sarkozy and Ms. Merkel, along with other leaders on the continent, are wary of ceding too much of their national sovereignty to a new EU authority in Brussels. Mr. Sarkozy faces a tough re-election contest in April and yielding any control over French spending could prove damaging to his campaign.
The chief fear now for European leaders is that Italy and Spain, with the continent's third and fourth biggest economies, may also need bailouts to avoid defaulting on their debts. But their debts could prove too large for Europe to handle if the Rome and Madrid governments default.
Italy's new government moved Sunday to cut its spending, with Mr. Monti unveiling a three-year, $40 billion package of emergency budget measures to pull the Rome government back from the brink of bankruptcy. He told a news conference Monday that without the latest austerity measures he thinks Italy “would have collapsed,” ending up in a similar fate as Greece.
Mr. Monti said the plan includes immediate budget cuts as well as significant steps to fight tax evasion. To do his part to cut the spending, Mr. Monti said he will forego his salary as prime minister. The measures will be presented to the parliament, which must approve them.
All 27 EU nations would have to approve changes to the 1992 Maastricht Treaty that created the EU, but that broad approval would not be necessary if spending controls apply only to the 17 nations that use the euro.