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France and Germany merge corporate tax rate – and call for ‘Eurozone government’

Sarkozy and Merkel want collective Eurozone ‘government’, and call on other countries to make laws balancing their budgets.

Image: Geert Vanden Wijngaert/AP

FRANCE AND GERMANY have agreed to introduce a joint corporate tax rate in their countries by 2016 – and have called on other Eurozone countries to establish a collective financial ‘government’ for the entire Eurozone.

Holding a press conference after a bilateral summit, German chancellor Angela Merkel and French president Nicolas Sarkozy said their countries would also try to introduce a so-called ‘Tobin Tax’ on financial transactions as a matter of priority.

The duo also called on the leaders of the 17 Eurozone member states to adopt so-called ‘balanced budget’ rules in the constitutions, requiring them to take drastic action aimed at tackling their national debts,  by the middle of next year.

The pair – representing the Eurozone’s two largest and strongest economies – also urged other member states to allow for the creation of a ‘collective government’, to be led in theory by the European Council president Herman van Rompuy.

Merkel outlined plans which would still give each Eurozone’s domestic parliament an oversight of the ‘government’, on a ‘step by step’ basis. France had put forward good proposals in this regard, she said.

The call for a common administration of the Eurozone could pave the way for the eventual introduction of common ‘Eurobonds’ issued by the Eurozone as a whole – though both leaders said such a prospect was not immediately on the table.

Such bonds, which would command interest rates lower than those currently paid by weaker economies – but which would see France and Germany paying significantly higher rates than they now – would all but divert the need for any further Eurozone bailouts in future.

Sarkozy commented that while Eurobonds could potentially be “the result of a process of integration”, they would likely mark the final threshold of financial integration between Euro member states.

He added that if countries were to abide by the calls to invest more in education, universities and other social causes, they would have to first get their domestic debt levels under control.

Merkel added that Eurozone countries needed to “integrate our financial policies to a greater extent” and said confidence in the Euro could be enhanced if its members worked more closely together.

It was not clear whether the proposed new Eurozone government would require a new pan-EU treaty, though Merkel conceded: “I can’t say that the Lisbon Treaty will be the last one we [Euro members] sign.”

Under Germany’s plans for a legal budget limit, countries whose national debt stood at over 60 per cent of their economic output would be asked to wipe five per cent off their debt every year. Countries falling under this so-called “golden rule” would include Ireland and Italy.

“We have all learned that punctual action can help to address our problems,” Merkel said. “Europe has learned that it must take action.”

The calls came on a day when Eurozone economic growth for the second quarter of 2011 was revealed as a surprisingly 0.2 per cent, with growth in Germany only 0.1 per cent.

More: Read what Michael Noonan had to say about the plans >

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Gavan Reilly

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