PARIS — Under growing pressure from nervous financial markets, the leaders of France and Germany reached a difficult compromise agreement Monday to seek mandatory limits on budget deficits among debt-laden European governments.
Their accord, which requires rewriting a major European Union treaty, was designed to eliminate the leading cause of doubt about European financial health and respond to a barrage of questions about whether the continent’s common currency, the euro, can endure.
Dec. 5 (Bloomberg) -- Prime Minister Mario Monti will lobby parliament to support a 30 billion-euro ($40 billion) package of austerity and growth measures to trim the euro-region's second-biggest debt and prevent Italy from sparking the euro's breakup.
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If adopted by other nations in the union, the deal would mean drastic cuts in European budgets. It would also spell the end of three decades of overspending that helped finance a cozy social protection system envied by much of the world.
Underlining the high stakes, Standard & Poor’s announced in New York that 15 nations using the euro are being placed on a credit watch, risking a downgrade in their creditworthiness rating because of failure to rein in the crisis. The rating agency made the decision despite the accord Monday, signaling doubt that the new measures will be implemented fast enough to calm fears about heavy government debt.
Although France and Germany represent the core of the European Union, it is far from certain that the rest of the group’s 27 nations will go along at a crucial European summit scheduled for Thursday in Brussels. The deal could face significant opposition from those reluctant to surrender national sovereignty over fiscal policy.
Riding on the E.U. decision is not only the economic health of European nations, but also the damage that economists fear would be caused in the United States and around the globe if the euro collapses and the European Union begins ripping apart.
The proposed rules, a hard-fought compromise between French President Nicolas Sarkozy and German Chancellor Angela Merkel, would be part of a renegotiated E.U. treaty that is to be completed by mid-March and ratified within two months, the two leaders said. The attempt to impose such a tight timetable was designed to show the financial markets that Europe is serious about bringing its debt problem under control once and for all.
“This package of measures is a proof of our absolute determination to guarantee a stable euro,” Merkel said at a joint news conference with Sarkozy in Paris.
The Franco-German accord is to be outlined in a letter to E.U. leaders Wednesday and voted on at the special summit conference the next day, making this a make-or-break week for the ideal of European unity. Sarkozy said the hope is that all 27 E.U. nations will adhere to the plan. But he said it could also move forward with consensus from only the 17 countries that have adopted the euro as their common currency.
The 17-nation euro zone includes Greece, Italy, Spain and France — nations that are having the hardest time selling their bonds because of fears that they will be unable to repay what they owe.
The swift schedule for the treaty change is unheard of in the history of the European Union, which is notorious for slow-moving bureaucracy and endless bickering among governments at all-night conferences at the union’s Brussels headquarters.