Sarkozy aiming for new EU treaty

Thursday 01 December 2011 18.42
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Sarkozy to meet Merkel again before summit
Sarkozy to meet Merkel again before summit
Mario Draghi warns of increased risks to euro zone economy
Mario Draghi warns of increased risks to euro zone economy

French President Nicolas Sarkozy has called for a new treaty that will re-found the European Union.

Speaking in the French city of Toulon, he said France and Germany were working towards this, and he would have more talks Europe's future with German Chancellor Angela Merkel on Monday.

The French President said changes would entail more and closer economic governance, with more qualified majority voting. He added that "unfair competition" on tax could not continue.

President Sarkozy said all of Europe was stronger when France and Germany were united. He said that although there was a debate about the ECB's role in the crisis, he was convinced that the bank would take action to prevent deflation in Europe, but it was up to it to decide how and when.

The Franco-German meeting comes ahead of a summit of European leaders in Brussels on December 9, where possible changes to the EU treaties will be on the agenda.

Germany and France have said they will make joint proposals for stronger powers to enforce budget discipline in the euro area.

Draghi signals possible bigger ECB role

European Central Bank President Mario Draghi signalled it was willing to take further action to prop up the euro zone economy in a speech to the European Parliament today, saying risks had grown and that the ECB was aware of growing banking problems.

Highlighting action the ECB took yesterday with other major central banks to provide dollar liquidity that was reminiscent of the 2008 financial crisis, the ECB chief said the bank would ensure inflation did not undershoot its target as well as exceed it.

Markets read that -and the warning of growing downside risks to the economic outlook - as pointing to a second cut in official interest rates in as many months at next week's ECB policy meeting, pushing the euro to a low.

"The ECB's monetary policy is constantly guided by the goal of maintaining price stability in the euro area over the medium term - and this applies to price stability in both directions," Mario Draghi said.

"Downside risks to the economic outlook have increased," he warned.

Mr Draghi stressed that he was speaking in the ECB's pre-meeting period and that nothing he said should be interpreted in terms of future policy decisions. But many investors read the comments as upping the chances for a rate cut next week over which analysts have been divided.

He also said that the euro zone countries must unify more closely to avoid a repeat of the debt crisis that has rocked the currency and is threatening the global financial system.

He also hinted that the European Central Bank may play a more pivotal role in the resolution of the crisis, but he insisted that the governments must first back proposals to align their budgetary policies.

"Other elements might follow, but the sequencing matters," Mr Draghi said. "And it is first and foremost important to get a commonly shared fiscal compact right,'' he added. He said a "new fiscal compact" is needed, that would force governments to play by more stringent rules.

A summit of EU leaders on December 9 is expected to focus on how to make the euro zone more unified.

Mr Draghi also said that yesterday's joint intervention by the world's leading central banks to make dollars more easily available is only a temporary measure.