Germany And France Plan New Stability Pact

Germany and France are poised to announce a new crisis plan that the two countries, along with other euro countries, would back with hopes of encouraging the European Central Bank to intervene more forcefully in the debt crisis, and to calm nervous financial markets. German Chancellor Angela Merkel and French President Nicolas Sarkozy could announce the plan in the coming week.

The plan is possibly similar to the Schengen Agreement which applies to EU countries that choose to take part and enables their citizens to enjoy uninhibited cross border travel. Among the countries in the Stability Pact, there would be a treaty spelling out strict deficit rules and control rights for national budgets. Because it would take too long to change existing European treaties, the new Stability Pact could be agreed upon and implemented at the start of 2012.

The Stability Pact calls on the European Central Bank to become more of a crisis fighter in the euro zone. Although the European Central Bank is independent. It is widely believed if Europe’s leaders can agree on something, then the ECB will be more likely to jump in and help.

The ECB, which cannot directly finance governments, has been buying Italian and Spanish bonds on the open market since August to try to keep down borrowing costs for the euro zone’s third and fourth largest economies. Yields on Italian and Spanish debt have climbed in recent weeks, despite the ECB intervention and the appointment of a new technocrat government in Rome and the election of the conservative Popular Party in Madrid.

The European Commission, the EU executive arm, proposed on Wednesday to grant itself intrusive powers of approval of euro zone budgets before they are submitted to national parliaments. If approved, it would effectively mean ceding some national sovereignty over budgets. Germany is pushing to change the European Union treaty so that a country could be sued for breach of EU budget rules in the European Court of Justice. Germany opposes the joint issuance idea saying spendthrift economies would piggyback on its low borrowing costs leaving Germans with no gain for being fiscally responsible, while the spenders would receive no pain for their carelessness.

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Danny is the old hat at Active Investor. One of the been around the block a few times traders, his main focus is on overall market conditions. Be it some new merger talk or Washington being Washington, you can expect Danny will be on top of it.

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