Crisis summit puts euro-bonds on backburner

The leaders of France and Germany have agreed to political rather than economic moves in an attempt to quell financial market turmoil and boost confidence in the euro.

But their moves to shore up the governance of the euro zone fell short of financial market expectations for the immediate introduction of euro-bonds and more economic integration.

Stocks on Wall Street fell in reaction, ending a three-day rally. Financial stocks, in particular, will be hurt by a proposed transaction tax.

President Nicolas Sarkozy and Chancellor Angela Merkel have proposed EU Council President Herman van Rompuy lead a new euro-zone council for two and a half years.

Calling it a "veritable euro zone economic governance," President Sarkozy said the body will meet twice a year, and more if necessary.

"We want to state our absolute will to defend the euro," he said after a meeting with German Chancellor Angela Merkel.

France and Germany also will push for the 17 euro-zone members to adopt a golden rule, or the obligation to balance their public finances, before the next northern summer. Another proposal is to adopt a tax on financial transactions in September.

Both leaders said they were convinced that the euro zone must move toward deeper integration but added that it was too early to introduce euro-zone bonds, a move favoured by financial markets as a means of dealing with all member-government debt.

President Sarkozy said any such move would have to "crown" the euro-zone integration process, but couldn't constitute a foundation.

Chancellor Merkel said, "Again and again, I feel that people are looking for the one event, the one method with which all comes good again and we get out of the crisis. I don't think that we are dependent on the last-resort measure, nor do I believe that we can solve problems" using a magic wand.

President Sarkozy said the euro-zone heads of state and government would meet more often and would represent "veritable euro-zone economic governance."

He said that the group would meet twice a year, and more if necessary, under a single leader; it was proposed EU council President Van Rompuy to lead this council for 2½ years.

The proposed tax on financial transactions would be accompanied by measures to align corporate-tax regimes between France and Germany.

"We want France and Germany to move closer in terms of fiscal integration," Chancellor Merkel said.