German Chancellor Angela Merkel said Friday that European nations were on the verge of creating a “fiscal union” with rigorous budgetary oversight to battle the eurozone debt crisis.
“We are not only talking about a fiscal union, we are beginning to create it,” she said in a keenly awaited speech to parliament, adding it would be a “fiscal union with strict rules, at least for the eurozone”.
Merkel said the last gruelling months, packed with market turmoil, the threat of Greek default on its towering debts and political strife in the European Union, had focused minds.
“Anyone who had said a few months ago that we, at the end of 2011, would be taking very serious and concrete steps toward a European stability union, a European fiscal union, toward introducing (budgetary) intervention in Europe would have been considered crazy,” she said.
“Now these items are on the agenda, we are on the verge of it, there are still difficulties to be surmounted but their necessity is now widely recognised.”
Merkel was laying out what she said were the goals of Germany, the EU’s top economy, ahead of a crunch summit in Brussels next week.
She will hold talks with French President Nicolas Sarkozy on Monday to hammer out a common position ahead of the gathering.
In a landmark speech Thursday in front of 5,000 cheering supporters, Sarkozy warned that the developed world was entering a “new economic cycle” dominated by austerity, heralding tough times ahead for jobs and business.
He said that in Europe this would require a new political and budgetary consensus that would win back the confidence of the markets.
“France is fighting with Germany for a new treaty. More discipline, more solidarity, more responsibility … true economic government” he said, urging members to adopt a “Golden Rule” obliging them to balance their budgets.
Merkel said the “fiscal union” should lead to a new “European debt brake” to stop countries from spending their way to the brink of insolvency.
“We must strengthen the foundations of the economic and currency union,” she said.
Merkel said there was “no alternative to treaty change” which would codify budgetary discipline in the eurozone.
“Rules must be respected. Respect for them must be supervised. Their violation must have consequences,” she said.
But Merkel once again ruled out eurobonds, a proposal to pool European debt to keep a lid on borrowing costs for member states, which European Commission chief Jose Manuel Barroso formally tabled last week.
“Whoever has not understood that they (eurobonds) cannot be the solution to the crisis has not understood the nature of the crisis,” she said.