Making Europe Competitive Again: Merkel and Sarkozy Propose Some Solutions - Together

Barack Obama talked about it in his state of the union message. Hu Jintao mentioned it in his state visit to the US. Now Angela Merkel of Germany and Nicolas Sarkozy of France have proposed a series of measures to address the issue confronting every national and regional economy: competitiveness. Whether competitiveness is really the issue or whether the growth of developing economies like the BRICs is belatedly putting more pressure on established economies is debatable.

That the leaders of France and Germany have agreed on measures is noteworthy in itself. The challenge now will be to implement.

John O'Donnell and Julien Toyer have the story for Reuters:



"Germany and France proposed a competitiveness pact for Europe on Friday and EU leaders discussed strengthening a euro zone rescue fund, hoping to win back market confidence in the bloc's public finances.

Paris and Berlin -- the driving forces behind euro zone policy -- set out a wish-list of measures they want euro zone and other countries to sign up to including:

* limits on debt levels written into national laws

* a higher retirement age, based on demography

* the abolition of wages indexed to inflation, and

* a minimum corporate tax rate

"Germany and France will make it very obvious that we intend to defend the euro as a currency ... we also want to defend it as a political project," German Chancellor Angela Merkel told a joint news conference with French President Nicolas Sarkozy just before a presentation to EU leaders.

"We want to send out a clear message, that as the European Union, we intend to grow together. What we want to establish is a pact for competitiveness," she said.

The two biggest euro zone economies want the pact to be part of a "comprehensive package" that leaders agree in March, when they hope to agree a series of measures to help draw a line under the euro zone's year-long sovereign debt crisis.

"We are working hand in glove, France and Germany, with a clear, total determination to support the euro," Sarkozy said.

The package is to include changes to the European Financial Stability Facility, the 440 billion euro bailout fund agreed last May, to increase its effective lending capacity and give it more flexibility on how to use its money.

In draft conclusions prepared ahead of the summit, the 27 heads of state and government said they would consider "concrete proposals" for strengthening the EFSF "to ensure the necessary flexibility and financial capacity to provide adequate support," with those discussions being finalized next month.

EU diplomats said no major decisions would be taken on Friday as market pressure on debt of Greece, Ireland, Portugal or Spain has eased. But officials understand that failure to agree on concrete measures before the next scheduled summit on March 24-25 could reignite the conflagration in the markets.

In a sign of returning investor confidence, Spain's borrowing costs fell sharply at bond auctions on Thursday. Portugal has also had encouraging recent debt sales.

Strengthening the EFSF has been the focus of discussion for months, since it became clear its effective lending capacity was only about 250 billion euros, not 440 billion, due to guarantees built into the fund to maintain its triple-A credit rating.