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Germany, France pledge to protect euro


The leaders of Germany and France have added their weight to the battle to preserve the European single currency, issuing a joint statement promising to do everything they can to stop the 17-country bloc from breaking up.

The statement from Chancellor Angela Merkel and President Francois Hollande on Friday was brief and didn't spell out any specific course of action. But it offered a show of unity by the leaders of the eurozone's two biggest economies.

"Germany and France are deeply committed to the integrity of the eurozone," the two leaders said in their statement. "They are determined to do everything to protect the eurozone."

To achieve that, they added, eurozone members and European institutions "must comply with their obligations, each in their own area of competence."

The statement, made after a telephone conversation between the two leaders on Friday, came a day after Mario Draghi, president of the European Central Bank, told business leaders in London that the ECB would do "whatever it takes" to preserve the euro and raised expectations that he could step in to lower the high borrowing costs that are crippling countries like Spain and Italy.

Concerns about the 17 countries that use the euro have intensified over the past few weeks as evidence builds that economies across the region face deepening recessions. Spain and Italy, in particular, are finding it increasingly expensive to raise money on the debt markets due to spiralling borrowing costs. Investors are losing confidence that the countries will be able to control their debt while they are in recession.

Fears have also resurfaced that bailed-out Greece might yet be forced out of the single currency if it fails to carry out reforms that were a condition of its financial rescue.

Merkel and Hollande underlined the need to "implement quickly" decisions made by a European Union summit last month.

Those decisions included allowing Europe's bailout fund - once a new, independent bank supervisor is set up - to give money directly to a country's banks, rather than via the government. Countries that pledge to implement reforms demanded by the European Union's executive Commission also would be able to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece, Portugal and Ireland.

Markets across Europe rose following the statement with the FTSE 100 up 0.7 per cent and Germany's DAX index up 1.1 per cent. In Spain, the main IBEX stock index was up 2.7 per cent while the borrowing rate on its 10-year bond - a bellwether of market confidence in a country's ability to manage its debt - was down to 6.73 per cent. In Italy, the FTSE MIB stock index had risen 2.7 per cent and its 10-year bond's interest rate was had fallen to 5.95 per cent.

Merkel and Hollande made no specific reference to the ECB's role in helping solve the crisis, but Merkel's finance minister earlier on Friday welcomed the remarks Draghi made. The comments have raised expectations that the ECB could step in to lower high borrowing costs - possibly by buying government bonds.