Euro crisis meeting

The leaders of France, Germany and Italy agreed on Thursday to change the European Union's treaties in order to improve economic governance among the 17 nations that share the euro currency, while making assurances that the changes would not impact the independence of the European Central Bank (ECB).

French President Nicolas Sarkozy and German Chancellor Angela Merkel met with Italy's new Prime Minister Mario Monti in Strasbourg, France, to discuss the sovereign debt crisis, which continues to rattle bond markets due to growing concerns about the extent of indebtedness in the eurozone countries.

Among the most worrying cases is Italy, the eurozone's third-largest economy, which has debts of some 1.9 trillion euros ($2.5 trillion) or around 120 percent of the country's national income. Monti said he laid out a plan to his French and German partners "confirming the objective of a balanced budget by 2013."

Sarkozy said the EU treaty changes would aim to "improve the governance of the eurozone so that there is more integration and convergence of economic policies," adding that the specific "modifications" would be presented to the broader EU during a summit in Brussels on December 9.

ECB role

The French president appears to have retreated from his support for an activist role for the ECB, saying that he agreed with his German and Italian counterparts to "abstain" from making further demands of the bank and to "respect the independence of this essential institution."

In the past, France has urged a greater role for the ECB in stopping the debt crisis spreading to core eurozone members, such as France itself. On Wednesday, French Foreign Minister Alain Juppe called for the ECB to play "an essential role" in re-establishing confidence.

France has called for the ECB to be allowed to monetize sovereign debt, arguing that the bank's almost unlimited resources would end market speculation about potential defaults, but it has met with strong German opposition.

Merkel has so far remained adamant in her opposition to the ECB acting as a lender of last resort to debt-stricken eurozone economies.

"The French president has just underlined that the European Central Bank is independent," Merkel said during a news conference with Monti and Sarkozy. "So the eventual modifications to the treaties will not concern the duties of the ECB, which concern monetary policy and monetary stability."

Although Sarkozy has tempered his calls for a broader ECB mandate, he bluntly stated that Berlin and Paris do not always see eye-to-eye on the institution's role.

"When it comes to institutions like the ECB, we don't have the same history," Sarkozy said. "That's the reality, there's no point in denying it."

Opposition to joint bonds

Merkel has also been at loggerheads with European Union President Jose Manuel Barroso over his proposal to consider issuing joint European bonds as a way to promote stability.

Merkel has argued vehemently that such a step would not solve “structural flaws” with the euro. However, she has said she will at least look into the proposal.

This may be another contentious point between Merkel and Sarkozy, as France is also in favor of European bonds.

Thursday's meeting has gained an increased sense of urgency following a failed German bond auction on Wednesday, where Germany managed to sell only just over 3.6 billion euros ($4.8 billion) worth of the six billion euros in 10-year bonds for sale.

In addition, France has received another warning that its triple A credit rating could be downgraded.

Author: Timothy Jones, Spencer Kimball (dpa, AP, AFP)
Editor: Michael Lawton