PARIS — Seeking to restore confidence in the euro, the leaders of France and Germany jointly called for changes to the European Union treaty so that countries using the euro would face automatic penalities if budget deficits ran too high.
Stock prices rose and borrowing costs for European governments dropped sharply in response to the changes proposed by French President Nikolas Sarkozy and German Chancellor Angela Merkel. They said their proposals would prevent the kind of out-of-control spending and borrowing that led to the debt crisis that is engulfing Europe and threatening the global financial system.
Leaders of all 27 EU countries will discuss the proposals at a Friday summit in Brussels. If there is widespread support, that would be an important first step in bringing an end to the crisis, which has dragged on for more than two years.
“Our wish is to go on a forced march toward re-establishing confidence in the eurozone,” Sarkozy said at a press conference, with Merkel at his side. “We are conscious of the gravity of the situation and of the responsibility that rests on our shoulders.”
EU treaty changes could take months, if not years, to implement and don’t wipe away the mountains of government debt dragging down Europe’s economy. But preliminary buy-in Friday from the 17 countries that use the euro could set the stage for further emergency aid from the European Central Bank, the International Monetary Fund or some combination.
“The onus is still on the ECB to print money to make huge loans or bond purchases and draw a line under the crisis,” said Jennifer McKeown, senior European economist at Capital Economics. “Perhaps if other member states sign up to Merkel’s and Sarkozy’s proposals this week the (ECB) will step in.”
Sarkozy pledged to have a revised EU treaty ready for signing by March.