Germany's Angela Merkel and France's Nicolas Sarkozy are to propose modifications to EU treaties designed to improve governance of the eurozone.The announcement came after their first meeting with Italian Prime Minister Mario Monti since he took office.Sarkozy said they would "propose modification of treaties to improve eurozone confidence so there is more integration and convergence".
Merkel said they would not change the role of the European Central Bank.The modifications are to be proposed over the next few days, but no details have yet been released.France and Germany disagree about whether the ECB should act as lender of last resort and whether bonds should be issued by the whole of the eurozone instead of individual countries.
Monti laid out his economic programme to his French and German counterparts, including undertaking to balance Italy's budget in 2013.At 118 per cent of annual economic output, Italy has a high level of overall debt, but the country has managed to service similarly high debt levels for the past 20 years.
Over the next few days, France and Germany will propose modifications to the treaties to improve the governance of the eurozone: more integration, more discipline and more convergence of the economies."The main problem with the Italian economy is weak growth -the country has averaged 0.75 per cent growth a year over the past 15 years.
The yield on Italian 10-year bonds has jumped back above seven per cent, which is seen as the point at which the cost of borrowing becomes unsustainable.It had dropped below that level the day after Silvio Berlusconi stood down.The three leaders have agreed to meet again in Rome soon.
German bonds
The meeting came a day after a German bond auction failed to raise the target amount.On Wednesday, Germany sold just 3.6 billion euros (US$4.8 billion; £3 billion) worth of ten-year bonds, from six billion euros on offer.In an unusual move, Germany's central bank, the Bundesbank, said yesterday that reports it had bought up some of the remaining bonds were incorrect.
"We do not finance the government, that is absolute rubbish," Bundesbank board member Joachim Nagel told the Reuters news agency.In an official statement, the bank said: "The Bundesbank serves as a technical service provider in the issuance of federal government bonds and does not hold any German government bonds on its own account.
"Underbiddings have occurred from time to time in recent months and cannot be seen as a general mistrust in government securities." (Reuters)
