France, Germany commit to eurozone

FRANCE and Germany have insisted they remain committed to the eurozone, despite growing turmoil inside the single currency market.

In a joint statement released late last night, the leaders of the largest single currency area economies said they still believe the euro is the best approach for all member states.

The statement was made after an emergency telephone conference among the European Central Bank’s (ECB) 17 member states, which is expected to result in national bonds from Italy and Spain being purchased on the markets this morning in an attempt to solve both nations’ financial crises.

“[We] stress that complete and speedy implementation of the announced measures is key to restore market confidence,” French president, Nicolas Sarkozy and German chancellor Angela Merkel, read. “As decided on July 21, the effectiveness of the European Financial Stability Facility (EFSF) will be improved and its flexibility increased linked to appropriate conditionality.

“In line with July 21 decisions, France and Germany are confident that the ECB analysis will provide the appropriate basis for secondary market interventions as it will help determine the case when financial stability of the euro zone as a whole is at risk,” it added.

The comments came as concerns arose over the financial stability of the euro zone, a situation hampered by the crisis in the US, which lost its AAA rating from Standard and Poor’s (S&P) at the weekend.

The latest difficulties in the single currency zone have manifested themselves in Italy and Spain, with the debts accrued by the two nations now considered to be unsustainable by the markets without external support. This is expected to result in both countries effectively receiving bailouts from the ECB later today in a bid to quell market concerns.

However, speaking to the Irish Examiner, a senior Department of Finance spokesperson argued that the expected Italian and Spanish bonds buy-up “is just an extension” of a system that is already in place.

He added that, while it is the Central Bank’s responsibility to contribute to ECB decisions, the major body’s expected return to the bonds markets should not be seen as a bailout on a par with Ireland, Greece or Portugal. This, he said, is because, if the move does take place as predicted, the debt will have been purchased from third parties in the secondary markets instead of directly from Rome and Madrid.

The success or failure of the expected ECB move on Italy and Spain will become clearer throughout today as the world markets react to the measures.