Germany and France have reached a consensus on steps to boost economic coordination within the euro zone as part of a comprehensive anti-crisis package that will also see the scope of Europe’s bailout fund bolstered.
German officials said on Wednesday that Chancellor Angela Merkel and French President Nicolas Sarkozy would present joint proposals to strengthen policy coordination in the 17-nation bloc at an EU summit in Brussels on Friday.
German Deputy Finance Minister Joerg Asmussen sent the strongest signal yet that Berlin was prepared to give new powers to the euro zone’s rescue fund in exchange for fiscal discipline commitments by other euro members.
“We have always said that we would do all that is necessary to defend the stability of the euro zone as a whole,” Asmussen told a conference in Frankfurt.
“That might include revising the scope and efficiency of the EFSF,” he said, referring to the 440 billion euro ($609 billion) European Financial Stability Facility.
No final agreement on a new strategy for combating the euro zone’s sovereign debt crisis is expected before a March 24-25 summit, but markets are already welcoming signs that European leaders are zeroing in on a deal to stem contagion from Greece and Ireland to vulnerable countries like Portugal and Spain.
The euro has gained 7 percent on the dollar in the past three weeks to trade above $1.38 for the first time since early November. The risk premiums on Spanish and Greek 10-year bonds are at a three-month low.
Even the spreads betwen Irish bonds and German benchmarks narrowed on Wednesday on relief that a ratings downgrade from Standard & Poor’s was not deeper.