Germany, France press coercive eurozone debt rules

Germany and France stepped up a drive on Monday for coercive powers to reject eurozone members' budgets that breach EU rules, as a market rout of European debt eased temporarily on hopes of outside help for Italy and Spain.
The OECD rich nations' economic think-tank said the European Central Bank should cut interest rates and abandon its reluctance to step up purchases of government bonds to restore confidence in the euro area, which now posed the main risk to the world economy.
--- Aim is "stability union" of 17 euro states: Germany
--- Moody's warns all European govt bond ratings threatened
The ECB shows no sign of doing so yet. It bought 8.5 billion euros of eurozone government debt in the latest week, in line with its previous activity but well short of what economists say is necessary to turn market sentiment around. In Brussels, finance ministers of the 17-nation currency area meeting on Tuesday are due to approve detailed arrangements for scaling up the European Financial Stability Facility rescue fund to help prevent contagion in bond markets, and release a vital aid lifeline for Greece.
The signs are the EFSF may not have enough clout, leaving the onus firmly on the ECB. Berlin and Paris aim to outline proposals for a fiscal union before a European Union summit on December 9 increasingly seen by investors as possibly the last chance to avert a breakdown of the single currency area.
"We are working intensively for the creation of a Stability Union," the German Finance Ministry said in a statement. "That is what we want to secure through treaty changes, in which we propose that the budgets of member states must observe debt limits." Moody's Investors Service warned that the rapid escalation of the eurozone sovereign debt and banking crisis threatened all European government bond ratings.
"While Moody's central scenario remains that the euro area will be preserved without further widespread defaults, even this 'positive' scenario carries very negative rating implications in the interim period," the ratings agency said in a report. Finance Minister Wolfgang Schaeuble acknowledged on Sunday that it may not be possible to get all 27 EU member states to back treaty amendments, saying agreement should be reached among the 17 eurozone members.
"That can be done very quickly," he told ARD television. Sources familiar with the Franco-German negotiations said they were also exploring a deal among a smaller number of countries outside the EU treaty if necessary. The leaders of two smaller eurozone countries, Finland and Luxembourg, voiced unease about the Franco-German plans because they appeared to bypass the European Commission, which is seen as a guarantor of equal treatment for all member states.
"We don't find this type of system good and I am not too sure if it will get wider support. The disadvantage of this proposal is that it would bypass the EU, the Commission would have a very small role," Finnish Prime Minister Jyrki Katainen told reporters. Luxembourg Prime Minister Jean-Claude Juncker, who chairs eurozone finance ministers, also warned against looking for instruments outside the EU treaty. In France, Agriculture Minister Bruno Le Maire said eurozone countries would have to give up some budget sovereignty to save the euro from hostile "speculators".
"We won't be able to save the euro if we don't accept that national budgets will have to be a bit more controlled than in the past," Le Maire told Europe 1 radio. Giving up any fiscal sovereignty is politically sensitive in France, which has a strong Gaullist, nationalist tradition. Asked whether the Commission would be granted intrusive powers over national budgets in the eurozone, Le Maire said: "Why not?
The French people have to realise what is at stake - the preservation of our common currency and our sovereignty. The European Commission also said Italy had not asked for any amount of money and there were no discussions at European level on aid for Rome. IMF inspectors are due in Rome this week to examine Italy's public finances after former Prime Minister Silvio Berlusconi agreed earlier this month to submit to regular monitoring of his promised austerity measures and economic reforms.