Newspaper says tough budget discipline may be in pipeline

BERLIN - German Chancellor Angela Merkel and French President Nicolas Sarkozy are planning more drastic means - including a quick new Stability Pact - to fight the eurozone sovereign debt crisis, Welt am Sonntag reported on Sunday.

The German newspaper reported in an advance before publication that if necessary Germany and France were ready to join a number of countries in agreeing to tough budget discipline.

The report, which echoed a Reuters report on Friday from Brussels, quoted German government sources as saying that the crisis fighting plan could possibly be announced by Merkel and Sarkozy in the coming week.

The report said that because it would take too long to change existing European Union treaties, eurozone countries should avoid such delays be agreeing to a new Stability Pact among themselves - possibly implemented at the start of 2012.

It could be similar to the Schengen Agreement that allows for uninhibited cross border travel for citizens in countries that take part. Among the countries in the Stability Pact there would be a treaty spelling out strict deficit rules and control rights for national budgets.

The European Central Bank (ECB) should also emerge more as a crisis fighter in the eurozone. The ECB is independent and governments cannot tell it what to do. But the expectations on the ECB are clear, Welt am Sonntag wrote.

"Based upon these measures, there should be a majority within the ECB for a stronger intervention in capital markets," Welt am Sonntag said. It quoted a central banker as saying: "If the politicians can agree to a comprehensive step, the ECB will jump in and help."

In Brussels on Friday, eurozone officials said a push by eurozone countries toward very close fiscal integration could give the ECB the necessary room for maneuver to scale up eurozone bond purchases and stabilize markets.

The ECB, which cannot directly finance governments, has been buying Italian and Spanish bonds on the secondary market since August to try to keep down borrowing costs for the eurozone's third and fourth largest economies and contain the spreading of Europe's sovereign debt problem.

Reuters