PARIS — France and Germany on Tuesday called for a “new economic government” for Europe, with mandatory balanced budgets enshrined in the constitutions of all eurozone members as a way to overcome the debt crisis that has threatened to fracture the continent’s common currency. French President Nicolas Sarkozy and German Chancellor Angela Merkel’s push for long-term political solutions instead of immediate financial measures sent the euro sliding.
Sarkozy and Merkel also proposed a Europe-wide tax on financial transactions and pledged to harmonize their countries’ corporate taxes in a move aimed at showing the eurozone’s largest members are “marching in lockstep” to protect the euro.
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Shares of financial markets operators, such as NYSE Euronext and IntercontinentalExchange Inc., tumbled.
Investors may be concerned about how the euro bloc will be put in place and how a proposed tax on financial transactions may affect demand for European assets, said David Gilmore of Foreign Exchange Analytics in Essex, Conn.
“On the surface, it sounds very bold, a federal ‘eurozone,’ ” Gilmore said. “The practical part still seems, to me anyway, to be a pipe dream.”
He said the plan to form a deeper fiscal union among the 17 countries using the euro “made the euro credible,” but governments might not want to surrender their rights to set tax and budget policies.
But some analysts say only tighter fiscal convergence between the euro zone’s 17 members, with the block’s strongest members guaranteeing the debts of the weaker partners, will resolve a crisis that has dragged on nearly two years.
Sarkozy and Merkel stressed their commitment to defending the common currency, a cornerstone of integration on this long-fractured continent. They presented their proposals after meeting Tuesday in Paris amid signs of economic slowdown, and after an exceptionally turbulent week on financial markets prompted by concern about Europe’s financial health.
The move appeared a step toward the closer long-term economic integration that many analysts have said is inevitable to make the euro experiment survive, though it was not clear how much effect it would have in the short term.
