• German chancellor has reportedly ruled out eurobonds for 'as long as I live'
• European stock markets open higher, Spanish and Italian yields flat
European stock markets have opened higher:
• The FTSE 100 index in London is up 25 points at 5472, a 0.5% gain
• Germany's Dax and France's CAC have both risen 0.4%
• Spain's Ibex has climbed 0.8%
• Italy's FTSE MiB is up 0.7%
Spanish and Italian ten-year government bond yields are flat at 6.885% and 6.19% respectively.
Ian Traynor, our Europe editor, reports ahead of today's Merkel-Hollande meeting in Paris:
Chancellor Angela Merkel goes to Paris on Wednesday to try to strike a Franco-German deal with President François Hollande amid deep-seated differences at what has been described as Europe's defining moment.
With the two key EU countries split for the first time in 30 months of single currency and sovereign debt crisis, José Manuel Barroso, head of the European Commission laid bare the high stakes in play at an EU summit in Brussels on Thursday as well as the high frictions between Germany and France.
Merkel's first visit to the Élysée Palace under its new occupant has been hastily arranged and comes on the eve of what is being billed as a crucial Brussels summit which, apart from the immediate financial dilemmas, is to wrestle with a radical blueprint aimed at turning the 17 countries of the eurozone into a fully-fledged political federation within a decade.
"We must articulate the vision of where Europe must go, and a concrete path for how to get there," warned Barroso. But he was unsure "whether the urgency of this is fully understood in all the capitals of the EU".
Since his election last month, France's socialist leader has quickly emerged as the most formidable challenger to German formulas for Europe's salvation after two years of Berlin largely dictating the EU response to the crisis.
Merkel is feeling bruised, having just withstood two unusual attempts by fellow leaders to ambush her and get Berlin to hand over its credit cards to write off what they see as other countries' profligacy.
In Mexico last week at the G20 and then in Rome at two bad-tempered summits in recent days, the Americans and the British – in cahoots with the leaders of France, Spain and Italy – sought to press Merkel into bankrolling fiscal stimulus and bank recapitalisation policies that would cut the vulnerable eurozone countries' cost of borrowing.
The pressure on Merkel may have backfired and reinforced German resistance to the ideas. The view in Berlin is that Hollande will have to back down amid the relative weakness of the French economy.
EU president Herman Van Rompuy published the leaked report for a path towards deeper economic and monetary union yesterday. Elisabeth Afseth, fixed income analyst at Investec, says:
The timeframe for achieving this is a decade, which is ambitious given the lack of agreement after well over two years of dealing with the crisis. Van Rompuy (in collaboration with ECB President Mario Draghi, EU Commission President Jose Barroso and the leader of the Eurogroup, Jean-Claude Juncker), sets out broad plans for further integration of fiscal policy as well as banking regulation, maintaining national decision making, but with the overriding control moving to the EU level.It proposes upper limits on national budgets (in line with the fiscal compact) and moving towards joint bond issuance. The plan will be discussed at the European leaders' summit tomorrow and Friday, I expect there might be some general agreement in the direction of need for further integration, but the plan includes a lot of measures that Germany has rejected firmly in the recent past and it is unlikely it will change its tone much.
Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy.
Expectations for the EU summit, which starts tomorrow, are getting lower by the day.
Angela Merkel's comments today when she speaks to the German parliament will be closely scrutinised, after she reportedly ruled out the idea of jointly guaranteed eurozone debt for "as long as I live" at a closed meeting with her coalition partners yesterday. Later today the chancellor is due to meet French president François Hollande, her first visit to the Élysée Palace since the Socialist leader was elected.
Gary Jenkins of Swordfish Research said:
If she really did say that then it is difficult to see how this week's summit can be anything other than a disaster and it may well be that the eurozone is heading into the abyss. Meanwhile it was reported that Mario Monti had threatened to resign unless common euro bonds were introduced, although this was denied by a spokesperson for the PM. Interesting that as far as I am aware Ms Merkel's comments have not been denied…
Italian and Spanish borrowing costs surged at auctions yesterday, when the Italian government bought €2bn of bonds from its oldest bank, Monte di Paschi, in an attempt to shore up its capital cushion.
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