Sarkozy and Merkel push new EU treaty to tackle debt crisis

France and Germany are to push for a new European Union treaty to impose tough budgetary discipline on the eurozone ahead of a crunch week for the future of the euro. 

Reuters/Fabrizio Bensch

German Chancellor Angela Merkel on Friday laid out a vision for fiscal union in Europe saying the region was on the verge of creating a “stability union” with greater budgetary discipline and control

Her statement to parliament followed a speech by French President Nicolas Sarkozy to supporters on Thursday in which he warned the developed world was entering a “new economic cycle”.

“We must confront with total solidarity those who doubt the stability of the euro and speculate on its break-up,” he said.

He stressed that France was fighting with Germany for a new treaty and urged eurozone members to adopt a ‘Golden Rule’ obliging them to balance their budgets.

European leaders are struggling to convince markets they can stave off the risk of a massive default that could bring down the banks, cause a credit crunch and the disappearance of the euro.

Eurozone leaders will meet in Brussels next Friday for a summit which is seen as key to halting the crisis. But there are reports that the region’s two biggest players – France and Germany – differ over which course to take.

France wants the European Central Bank, ECB, to become the eurozone’s lender of last resort while Germany insists the bank should stick to it price stability mandate.