— adds comments of fiscal budget monitoring, enlarge surveillance

PARIS (MNI) – France’s President Nicolas Sarkozy and Germany’s
Chancellor Angela Merkel, in an urgent-sounding 3-page letter to top EU
officials, expressed their mutual commitment to Eurozone stability and
said that safeguarding it was the responsibility of every EMU member
state.

They said another crisis like the current one must not be allowed
to happen, and urged a number of measures, including greater economic
governance, tighter surveillance of national budgets, stricter sanctions
for states that flout the EU fiscal rules, as well as tighter regulation
of financial markets, institutions and rating agencies.

“The euro is a major achievement of the European Union. It has been
greatly beneficial to all member states of the Eurozone. We are
completely attached to preserving the solidity, stability and unity of
the Eurozone,” Merkel and Sarkozy wrote to European Commission President
Jose Manuel Barroso and EU Council President Herman Van Rompuy in the
letter, which was published verbatim by French daily Le Monde.

They went on to say that, “the crisis has shown that all member
states are responsible for the stability of the Eurozone as whole and
the solidity of its single currency. For the success of the economic and
monetary union to continue it is not enough to respond to this crisis.
We must go beyond that and draw the lessons, taking all needed measures
to prevent a crisis like this one from happening again.”

“First and foremost,” they added, “we must reinforce the economic
governance of the Eurozone.”

The French and German leaders called on their fellow heads of state
and government, who will hold a summit meeting Friday night, to signal
that they are prepared to reinforce the monitoring of national budgets
within the Eurozone with “more efficient sanctions” for excessive
deficits and increased consistency between national budgets and the
Stability and Growth Pact.

The EU leaders should also express their readiness to enlarge
surveillance so that it includes competitiveness and current account
imbalances of member states, and to work towards the establishment of a
crisis resolution framework for the future, while “respecting the
principle of budgetary responsibility for each member state.”

The leaders of the EU’s two largest countries also urged greater
reform and transparency in financial markets, and a crackdown on
derivatives that tend to have a destabilizing effect.

“It is imperative to discourage speculation by introducing capital
and collateral requirements for transactions on non-standardized
derivative products and to deal with the question of destabilizing
‘naked’ selling,” Merkel and Sarkozy wrote.

They also said that reinforcing the quality of national fiscal and
economic statistics was of utmost concern, given the role that falsified
statistics have played in Greece’s loss of market credibility. They
urged quick implementation of a proposal to give Eurostat, the EU’s
statistical agency, greater investigative powers over national data.

They called for a regulatory squeeze on rating agencies, saying the
EU should make “full use” of a 2009 directive calling for registration
and supervision of the agencies. Given the events of recent weeks, there
needs to be a review of the methods used by rating agencies in judging
the quality of sovereign debt, as well as of the way in which ratings
decisions are communicated. The EU must “take into account the possible
role of the [rating] agencies in the amplification of the crisis and
their impact on financial stability,” Merkel and Sarkozy wrote.

They recommended that the use of ratings be reduced in setting
capital ratios in Europe.

In concluding, they wrote: “It is the duty of all of us to preserve
what we have acquired with the creation of the euro.”

–Paris Newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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