MARSEILLE, France - The leaders of France and Germany tried to rally fellow European conservatives Thursday around their latest bid to save the euro currency from collapsing under the weight of huge government debts.
German Chancellor Angela Merkel and French President Nicolas Sarkozy were meeting with heads of state and government from the center-right European People's Party in this Mediterranean port before moving on to Brussels for a crucial EU summit, with the 17-nation eurozone's fate in the balance.
The two sought backing for their plan to have eurozone nations submit their national budgets to much greater scrutiny. The Standard & Poor's rating agency injected urgency into those talks by warning it may downgrade the EU, just days after it threatened to lower its rating for 15 of the 17 euro nations.
"The longer we delay, the more costly and less productive the solution will be," Sarkozy told party members in this southern French port. "If we don't have an agreement Friday, there won't be a second chance."
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Their plan seeks to enshrine tougher budget oversight in the existing EU treaty or alternatively, create a new one for the 17 nations that use the euro that other European nations could opt in to. It proposes automatic sanctions for breaking strict budget rules and a requirement to balance national budgets.
European Commission President Jose Manuel Barroso tried to project optimism
Thursday morning that a deal to save the euro was in reach.
"I believe this is possible. My appeal my strong appeal to all the heads of state and government is to show this commitment to our common currency. I think this is indispensable, and leadership is about making possible what is indispensable," Barroso said.
Markets have mostly risen since last week on hopes that an agreement among European governments on the Franco-German plan would pave the way for the European Central Bank to intervene more aggressively to support eurozone bond markets. But investor optimism was deflated Wednesday after a German official said it could take up to Christmas to clinch a deal.
The head of the eurozone finance ministers said Thursday that leaders hope to get all 27 European Union countries on board with treaty changes this week.
"A treaty of all 27 members is to be hoped for, but if there are countries that don't want to accompany us in our search for a better European architecture then we'll go with a treaty of 17," Jean-Claude Juncker, the Luxembourg prime minister, told French radio France-Info.
Analysts said the summit was do-or-die for the eurozone.
"The politicians face a very stark choice between reaching an agreement that tees up the ECB to continue buying (bonds) and helping to restore confidence generally by their words and actions, or failing to agree and risk losing control of the situation, which could lead to a depression or worse," said Gary Jenkins of London's Evolution Securities.
"I think that the green shoots (in the U.S.) are actually real now," said Otter. "I think they could easily get stomped by a European giant."
The effects on the U.S. economy are real, agreed MoneyWatch blogger and economist Mark Thoma, and they have already played a depressing role on America's economic recovery.
"I think it is affecting confidence," said Thoma. "If you look at the correlation between U.S. GDP and European GDP, it's extraordinarily high. So whatever happens in Europe is going to affect the U.S. As companies look forward and say 'how confident can I be about the future,' they're going to look forward and worry about Europe, and that's going to hold back production."