BERLIN – Wary European politicians on Tuesday mulled a Franco-German proposal that euro-zone countries permanently rein in their deficits, underlining the difficulties of what would likely be an arduous process to rewrite European treaties, then abide by them.
German Chancellor Angela Merkel and French President Nicolas Sarkozy proposed Monday that euro-zone countries wash away doubts about the economic health of the continent by putting strict limits on their borrowing and spending.
Ask yourself the following questions and see how the crisis might impact your life.
Dec. 5 (Bloomberg) -- Mark Grant, a managing director at Southwest Securities Inc., talks about the decision by Standard & Poor's to place 15 euro nations, including France and Germany, on a negative outlook. S&P said the credit ratings of those countries may be cut depending on the result of a summit of European Union leaders on Dec. 9.
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The new rules would require more changes for populations already feeling the bite of austerity budgets, and will be discussed in greater depth at a European Union summit Thursday and Friday.
Emphasizing the stakes, Standard & Poor’s announced Monday evening that it was putting 15 euro-zone countries on watch for a possible downgrade of their credit ratings over concerns about the direction of the crisis. Indignant European leaders said Tuesday that the ratings agency’s move was premature.
The warning “is grossly excessive and unjust,” Luxembourg Prime Minister Jean-Claude Juncker, leader of the Eurogroup, said in an interview Tuesday on Deutschlandfunk Radio. “One should give the ratings agencies no more faith than they deserve.”
Asian markets closed down on the Standard & Poor’s warning, with Japan’s Nikkei down 1.39 percent, and Hong Kong’s Hang Seng index down 1.24 percent. European markets were mixed in early afternoon trading. Germany’s DAX was down 0.55 percent, France’s CAC 40 was down 0.23 percent and Britain’s FTSE 100 was up 0.23 percent.
Any new euro zone treaty would require approval by at least the 17 countries that share the euro currency. Some countries are likely to pose formidable challenges, both in ratifying the treaty, and then — perhaps more difficult — following the new rules. Merkel and Sarkozy’s proposal includes strict controls on borrowing that were already in place under a previous agreement but were disregarded by many of Europe’s biggest economies, including Germany itself, a country that prides itself in its fiscal rectitude.
In France, which is in the middle of an election campaign, opposition to Sarkozy’s deal has prompted calls that invoke the specter of Teutonic might. Last week, Socialist lawmaker Arnaud Montebourg told France Info Radio that the treaty rules were a “German diktat imposed on the euro zone,” comparing Merkel to Otto von Bismarck, who built Germany into a militaristic power in the 19th century.
U.S. Treasury Secretary Timothy F. Geithner backed the German-French proposal. Geithner, speaking in Berlin after talks with German Finance Minister Wolfgang Schaeuble, praised the deal, Bloomberg news reported.
“This of course will take time” and “a very substantial commitment and a sustained commitment of political will,” Geithner told reporters, as quoted by Bloomberg. “Financial crises are ultimately resolved when governments and central banks succeed in creating conditions that make it compelling for investors to take the risk involved in lending to governments and to banks.”
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