France and Germany plan changes to EU treaties

Germany's Angela Merkel and France's Nicolas Sarkozy are to propose modifications to EU treaties to improve governance of the eurozone.

The announcement came after their first meeting with Italian Prime Minister Mario Monti since he took office.

Mr Sarkozy said they would "propose modification of treaties to improve eurozone confidence so there is more integration and convergence".

Mrs Merkel said they would not change the role of the European Central Bank.

The modifications are to be proposed over the next few days, but no details have yet been released.

France and Germany disagree about whether the ECB should act as lender of last resort and whether bonds should be issued by the whole of the eurozone instead of individual countries.

Mr Monti laid out his economic programme to his French and German counterparts, including undertaking to balance Italy's budget in 2013.

The yield on Italian 10-year bonds has jumped back above 7%, which is seen as the point at which the cost of borrowing becomes unsustainable.

It had dropped below that level the day after Silvio Berlusconi stood down.

The three leaders have agreed to meet again in Rome soon.

End game?

The meeting followed a German bond auction on Wednesday, which failed to raise the target amount.

Germany sold just 3.6bn euros ($4.8bn; £3bn) worth of 10-year bonds, from 6bn euros on offer.

"In my conversations with analysts, traders and officials I'm finding more and more of them are talking about the end game for the euro. Not the end, necessarily, but a moment of truth very soon that will either force a big leap forward, or a wrenching break-up," said BBC economics editor Stephanie Flanders.

"Even Germany cannot be a safe haven if this crisis goes critical."

On Wednesday, European Commission president Jose Manuel Barroso launched a consultation on whether the 17 eurozone countries could issue joint stability bonds.

But Mr Barroso stressed that the creation of the bonds would require much greater scrutiny of the budgets and economic policies of individual members.

Germany opposes both the issuing of joint bonds and greater involvement for the European Central Bank (ECB) in bailing out troubled economies.

Its government is concerned that joint bonds would reduce pressure on member states to reduce their debt burdens.

On Thursday, French Foreign Minister Alain Juppe said that it was "urgent" that the ECB be allowed to intervene in the debt crisis.

"It's urgent. It will be discussed this very day in Strasbourg," he told France Inter radio.

There has been much discussion of the implications of the failure to place all of the German bonds on offer in Wednesday's auction.

It may be that demand for low-yielding bonds is limited or that it was a result of the Bundesbank taking an unusual approach to pricing its bonds.

"But nearly everybody thinks the auction does not bode well," Stephanie Flanders concluded.

Portuguese strikes

Also on Thursday, Portugal had its debt rating cut by Fitch to so-called "junk" status, and warned it could be cut again.

Fitch made the downgrade because of its "large fiscal imbalances, high indebtedness across all sectors and adverse macroeconomic outlook".

Portugal, along with Greece and the Irish Republic, has received bailout funds from the eurozone.

The news came as a 24-hour general strike in Portugal brought the country to a halt in protest against austerity measures.

From : http://www.bbc.co.uk