Merkel and Sarkozy set for clash over eurobonds

Another attempt to end the eurozone debt crisis and persuade the German Chancellor, Angela Merkel, to accept the idea of eurozone bonds – pooling all the existing nations' national debts – will be made by the French President, Nicolas Sarkozy, at a crisis summit tomorrow.

Second-quarter growth figures are due to be announced for the eurozone this week, and City analysts predict a modest 0.3 per cent average growth – despite Germany's continued strong performance.

Meanwhile the Italian Finance Minister, Giulio Tremonti, fresh from imposing another austerity programme, stepped up his calls for a more co-ordinated response to the eurozone debt crisis, including the creation of eurobonds or eurozone bonds.

Mr Tremonti was one of the first to come up with the idea, together with the chairman of the eurozone group of finance ministers, Jean-Claude Juncker of Luxembourg. Mr Tremonti argued at the weekend that jointly issued bonds would effectively make individual governments' debt a common burden, and said they were the "master solution" to the eurozone debt crisis. "We would not have arrived where we are if we had had the eurobond," he said. That sentiment has been echoed frequently by the British Chancellor, George Osborne, from the most important European economy outside the eurozone.

However, the idea was summarily rejected by their German counterpart, Wolfgang Schaeuble, who said such bonds would undermine the basis for the single currency by weakening fiscal discipline among member states. "I rule out eurobonds for as long as member states conduct their own financial policies, and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity," he said. "Without that kind of solidity, there is no foundation for a joint currency."

The French president has long argued for a form of "European economic governance" with a European Monetary Fund that could deliver just such a solidity.