Sarkozy, Merkel Seek To Calm Euro Jitters

German Chancellor Angela Merkel and French President Nicolas Sarkozy i i

German Chancellor Angela Merkel and French President Nicolas Sarkozy share a joke after addressing a press conference in Berlin on Monday. Despite the smiles, the two leaders have serious disagreements over how to proceed in the eurozone's economic crisis. Rainer Jensen/AFP/Getty Images hide caption

itoggle caption Rainer Jensen/AFP/Getty Images
German Chancellor Angela Merkel and French President Nicolas Sarkozy

German Chancellor Angela Merkel and French President Nicolas Sarkozy share a joke after addressing a press conference in Berlin on Monday. Despite the smiles, the two leaders have serious disagreements over how to proceed in the eurozone's economic crisis.

Rainer Jensen/AFP/Getty Images

German Chancellor Angela Merkel and French President Nicolas Sarkozy, whose economies are the major engines in the 16-country zone using the euro, tried to put forward a united front in talks in Berlin on Monday night.

But their meeting did little to mask deeper disagreements on how to further address the worst crisis in the eurozone's 11-year history.

The European Union and the International Monetary Fund have already agreed to nearly $1 trillion in debt guarantees for eurozone governments that need help. In yet another blow to Greece, Moody's Investors Service slashed the country's credit rating to junk status on Monday after the government in Athens only narrowly avoided default last month.

The EU is still trying to convince skeptical financial markets that the group has a clear and unified strategy for stopping the sovereign debt problems from infecting other economically troubled eurozone countries.

France and Germany have the largest economies in the eurozone. The two leaders have made some recent moves toward unity: Last week they called for an EU-wide ban on certain speculative trading practices.

Nonetheless, the markets will be watching the next summit of EU leaders on Thursday for signs of a definite consensus on how to reform the troubled eurozone.

The magazine Der Spiegel over the weekend wrote that German-French relations are now at a postwar "historic low." The Paris daily Le Figaro said the two leaders "have never been this far apart."

So with the risk of a political crisis exacerbating an economic one, Merkel and Sarkozy met Monday for talks and dinner.

Sarkozy told a press conference that talk of a French-German division on how to handle the situation is highly exaggerated.

"I think those who see us from the outside don't really understand how the relationship works. We are two very frank persons who have our convictions and we take great pleasure in debating and discussing them," Sarkozy said.

But the two leaders took only four questions, and the smiles and kind words didn't cover the fact that the two still have fundamental disagreements.

Since the Greek problem became a full-blown crisis, France has called for creation of an economic government for the eurozone. Paris wants a new body with a dedicated secretariat that would hold regular summits and enforce coordination and fiscal policy for the 16 countries that use the euro.

Germany is resisting. Merkel thinks a greater emphasis on fiscal discipline and tighter rules for all 27 EU members will help the sovereign debt problem.

Daniela Schwarzer, with the German think tank the Institute for International and Security Affairs, hopes her government comes around to the French view. She says regular top-level meetings of eurozone leaders are necessary, and should happen soon.

"The financial crisis has made this crystal clear: We need a stronger degree of political coordination," Schwarzer said.

The French — along with senior U.S. officials — have pressured export-dependent Germany to spend more to stimulate growth. But Germany recently unveiled its biggest budget-cutting plan since World War II, an austerity package that was slammed by unions and the political left in Germany as unfair to the poor.

It also was criticized by some economists as the wrong approach.

"At this point, frankly, it's damned if you do, damned if you don't for the chancellor," said Constanze Stelzenmuller, a scholar in Berlin with the German Marshall Fund of the United States.

Despite the domestic fallout, Merkel had to set a Europe-wide example by tightening the belt, she said.

"Whatever you think about the distribution of the cuts, I think it was important Germany sent this sign: we won't exempt ourselves from the austerity policies we are recommending to others," Stelzenmuller said.

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