Merkel, Sarkozy Unite on EU Reform as S&P Threatens Downgrades

Posted December 6th, 2011 at 3:55 am (UTC-5)
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German Chancellor Angela Merkel and French President Nicolas Sarkozy have renewed their push to tighten euro area economic cooperation after the credit agency Standard & Poor’s said it may downgrade ratings across the region.

The leaders of Europe’s two largest economies late Monday “took note” of the S&P warning, saying Germany and France “in full solidarity” are determined to take “all necessary measures” to ensure the stability of the eurozone.

Standard & Poor’s had announced it may cut the top triple-A credit rating of 15 of the 17 eurozone nations, including France and Germany, if they do not take decisive, comprehensive moves to end Europe’s debt crisis.

Earlier in the day, Ms. Merkel and Mr. Sarkozy called for a new European Union treaty to control spending. The two leaders want to impose a uniform set of tough budget standards across all 27 EU nations and automatically penalize countries if they violate spending rules.

The goal is to keep deficits in check and avert the need for more international bailouts like those already secured by Greece, Ireland and Portugal. The plan will be presented to other European leaders ahead of a two-day summit that begins Thursday to discuss resolution of the debt crisis.

Mr. Sarkozy said the eurozone nations should adopt the changes by the end of March. He said it was important for Germany and France to take the lead in resolving the crisis.

U.S. Treasury Secretary Timothy Geithner travels to Europe Tuesday to prod the continent’s leaders to take decisive action.

Geithner will meet 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.

The chief fear 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.

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.