France and Germany drummed up support for their plan to fix the eurozone on Thursday as European leaders geared up for a do-or-die summit to save the debt-laden currency union from collapse.
With hours to go before the EU summit in Brussels, German Chancellor Angela Merkel and French President Nicolas Sarkozy were hoping to rally support at a meeting of conservative EU leaders in the French port city of Marseille.
Paris and Berlin are desperate to win backing for their plan to amend EU treaties to impose tough budget discipline and streamline decision-making to prevent debt woes from spreading through the 17-member eurozone.
Ahead of the summit, officials made it clear just how much is at stake.
“The situation is serious… the euro can explode and Europe unravel,” France’s minister for European affairs, Jean Leonetti, warned on Canal Plus television.
“The entire world is watching. We must do everything” to save the euro, European Commission chief Jose Manuel Barroso told reporters in Marseille.
“It is extremely important that we all together, all the EU, show that the euro is irreversible,” he said.
The Franco-German plan would impose stricter fiscal rules including legal or constitutional limits on deficits and automatic penalties for eurozone nations that overspend.
It also proposes a “new, common legal framework” to boost financial and labour market regulation, the harmonisation of the corporate tax base and the imposition of a tax on financial transactions.
The summit is facing tough obstacles, officials said, including Germany’s refusal to embark on anything short of a full treaty change and British demands for protection of its vital financial services industry.
Piling on the pressure, ratings agency Standard & Poor’s on Wednesday put a number of large European banks on review and placed the European Union on watch for a downgrade of its AAA credit rating — just days after it issued an identical warning to nearly all of the eurozone countries.
Amid fears the eurozone’s woes could trigger a global economic downturn, US President Barack Obama spoke by telephone with Merkel on Wednesday, urging a “lasting and credible solution” to the crisis.
Obama this week despatched Treasury Secretary Timothy Geithner to Europe for talks with key players that will continue on Thursday in Marseille, where a summit of the European People’s Party brings together conservative leaders.
In Milan Thursday for talks with Italy’s Prime Minister Mario Monti, Geithner backed the new leader and his recently unveiled austerity programme.
Germany poured cold water on hopes for the summit on Wednesday, with officials warning that talks would be “difficult” and expressing pessimism.
Prime Minister David Cameron also made it clear that Britain intended to seek a high price for supporting euro nations.
“The more that countries in the eurozone ask for, the more we will ask for in return,” he told parliament. He threatened to veto any treaty change if Britain failed to receive “safeguards” from its European partners, particularly for the City of London financial services hub.
Eurozone leaders have warned that if the 27-nation EU cannot reach a deal, the eurozone could go it alone.
“I will not accept that when it comes to financial services, Britain reserves rights and freedom of action for itself that others will not have,” Luxembourg Prime Minister Jean-Claude Juncker, the head of eurozone finance ministers, told France Info radio.
“If ever within the 27 there are countries which do not want to accompany us in looking for this better architecture, we will reach a deal within the 17,” he said.
Merkel, along with Sarkozy and European Central Bank chief Mario Draghi, plus three other senior eurozone figures, will stage their own negotiating huddle ahead of the Brussels summit starting at 7:30 pm (1830 GMT).
The ECB was meanwhile set to cut its key rates for the second time in two months just hours ahead of the summit, in a bid to ease pressure on eurozone borrowing.
New chief Draghi cut rates by a quarter of a percentage point last month and analysts expect a similar move when the ECB’s decision-making body holds its monthly interest-rate meeting Thursday, bringing borrowing costs in the euro area down to just 1.0 percent.
European stocks saw moderate gains as traders looked ahead to the ECB’s decision, but Asian markets slipped on fears the summit will fail to deliver a conclusive deal.
London’s FTSE 100 index rose 0.42 percent to 5,569.97 points, Frankfurt’s DAX 30 climbed 0.94 percent to 6,050.85 points and in Paris the CAC 40 won 0.76 percent to 3,200.15 points. Milan advanced 0.60 percent and Madrid 0.68 percent.
Tokyo however shed 0.66 percent to end at 8,664.58, Sydney lost 0.27 percent to 4,280.7 and Seoul was 0.37 percent lower at 1,912.39. Hong Kong fell 0.69 percent to 19,107.81 while Shanghai gave up 0.12 percent to close at 2,329.82.