Merkel and Sarkozy meet to discuss better EuroZone governance

French President Nicolas Sarkozy and German Chancellor Angela Merkel met Tuesday in Elysee Palace to discuss better financial governance for the debt-ridden eurozone.

The leaders of the two biggest European economies are expected to give a press conference after a 2-hour meeting.

Previous Elysee statement said their talks would focus on recent volatility of the financial market, the US credit rating downgrade and worrying debt issue threatening the whole EuroZone.

A tough consensus between France and Germany is crucial to stabilize the market and for EuroZone members to implement fiscal reforms.

The market is anxiously waiting for their concrete decisions to control contagion of the EuroZone debt crisis and regain investors' confidence.

But this job seems too complicated to accomplish as they have decided to exclude the topic of Eurobond in their talks, though a growing number of economists deemed it the only way to stem fears of an Italy default affecting the market.

The Elysee Palace said Monday that Eurobond was not within the agenda of the Tuesday Franco-German summit, echoing Berlin's stance.

Newly-released growth rates of both countries fuelled market concerns. Following France's stagnated growth over Q-2 in Y 2011, German Federal Statistical Office (Destatis) reported a 0.1% GDP growth in Q-2 and revised down Q-1 growth rate to 1.3 from 1.5%.

European exchanges all witnessed fall in shares in the morning session at the release of German quarterly growth.

Meanwhile, Spain also saw a slowed growth rate at 0.2%, down from the 0.3%over the January-March period.

Quoting a source close to the Elysee, AFP said Mr. Sarkozy and French Prime Minister Francois Fillon held a meeting shortly after mid-day, attended also by several senior advisors. This came after a report by the economic daily Les Echos that France was likely to revise down its Y 2012 growth forecast.

France pledged to achieve a 2% growth in GDP in Y 2011. It also foresees a GDP rise of 2.25% for Y 2012, a revise down from the previous estimate of 2.5%.

Another issue Sarkozy was due to talk with Merkel was how to reduce its own debt and public deficit, local media said.

France has booked around 1,600-B Euros (US$2,303-B) in public debt, some 85.4% of its GDP, the highest among any European country having "AAA" rank by rating agencies, according to a previous report of the International Monetary Fund (IMF), which projected France's debt-to-GDP ratio to peak at 86.9% in Y 2012.

The daunting figures on the balance sheets of bigger eurozone economies might dwarf the unprecedented effort the European Central Bank made since the eurozone debt crisis emerged.

The ECB has spent 22-B Euros (US$31.67-B) on government bonds last week mostly in purchasing Italy and Spain bonds.

Mr. Sarkozy is due to meet his cabinet Wednesday and review a budget plan expected to include austerity measures to bring down the deficit on August 24.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.