Sarkozy and Merkel kick off week of euro crisis talks

After individually outlining their views last week on closer fiscal integration, the two leaders must overcome remaining differences to fine tune proposals they want to present to EU leaders in Brussels on Thursday, on the eve of a summit.

The duo, increasingly dubbed “Merkozy” as they intensify bilateral efforts to restore confidence in the eurozone, will meet over lunch today and are expected to hold a news conference afterwards.

They aim to agree plans for more coercive budget discipline in the eurozone, likely via EU treaty change, which they want all 27 EU leaders to approve at Friday’s summit.

“We need profound treaty modifications,” French government spokeswoman Valerie Pecresse told France Inter radio, but stressed the idea was to give eurozone governments the final say on applying any punitive sanctions proposed by the European Commission for fiscal slackers.

Markets rallied last week after central banks moved to help European banks and on hopes of a Franco-German masterplan. ECB chief Mario Draghi signalled that a eurozone “fiscal compact” could nudge the bank to act more decisively to fight the crisis.

The sticking point is that France opposes Germany’s push to have euro states surrender budgetary control to a European authority with veto power.

While Germany, fed up with costly bailouts, wants a more federal EU system, Sarkozy is under fire five months from a presidential election from political rivals who accuse him of being ready to hand over sovereignty to unelected EU officials.

Socialist presidential hopeful Francois Hollande, in Berlin today to address opposition Social Democrats (SPD), and far-right leader Marine Le Pen have both criticised the idea of handing Brussels more control of public finances.

Hollande aide Pierre Moscovici told French LCI television that acquiescing to Berlin’s demands would be evidence that the Franco-German relationship had become unbalanced.

“We do not need a treaty to have budgetary union,” he said. “Most of all, it erodes our sovereignty. We do not need to be under the nitpicking control of the European Court of Justice.”