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European Union leaders are preparing to meet for a closely-watched Brussels
summit on the fate of the euro.
On the summit's eve, German Chancellor Angela Merkel held two hours of talks
with the French President Francois Hollande in Paris.
The two remain at odds on how to move forward, with Germany opposed to pooling
debt while France insists the eurozone needs further integration.
Mrs Merkel has warned there is no "magic formula" to solve the crisis.
"Because I know the expectations and hopes that are pinned on this summit, I
will repeat right at the start what cannot be said often enough," Mrs Merkel
said in Berlin before the Paris talks.
"There is no quick solution and no simple solution. There is no one magic
formula... with which the government debt crisis can be overcome in one go."
Mrs Merkel left for Brussels without making further statements after her
meeting with Mr Hollande but said that "progress" for a pact for growth had
been made and she hoped European leaders would adopt a 130bn-euro ($162bn)
stimulus package.
Start Quote
Will this summit be a game changer? Even if no big decisions are taken, the
direction of travel may be set and that is important
image of Gavin Hewitt Gavin Hewitt Europe editor
Read more from Gavin
Mr Hollande, who became French president on a ticket of anti-austerity, has
been a strong supporter of the growth package.
European authorities have unveiled proposals such as the creation of a European
treasury, which would have powers over national budgets.
The 10-year plan is designed to strengthen the eurozone and prevent future
crises, but critics say it will not address current debt problems.
Spanish Prime Minister Mariano Rajoy said on Wednesday that his country could
not afford to finance itself for long at current bond rates.
Spanish 10-year government bonds have been trading at yields above 6.8%, coming
close to the 7% considered unaffordable.
'Vicious circle'
Several EU leaders want individual countries' debts guaranteed by the whole
eurozone, for instance in the form of centrally issued eurobonds.
But Mrs Merkel told parliament that eurobonds were "the wrong way" and
"counter-productive", adding: "We are working to breach the vicious circle of
piling up debt and breaking [EU] rules."
A mannequin of German Chancellor Angela Merkel stands outside her offices in
Berlin, 27 June Protesters parked a mannequin of Angela Merkel outside her
offices in Berlin
She said to loud applause: "It is imperative that we don't promise things that
we cannot deliver. Joint liability can only happen when sufficient controls are
in place."
Stronger competitiveness was the condition for sustained growth, the chancellor
said.
Mr Hollande believes eurobonds should be a eurozone priority for helping
countries like Italy and Spain bring their borrowing costs down.
But Mrs Merkel continues to insist that before anything is done to increase the
burden on German taxpayers, building blocks towards greater fiscal, banking
and, eventually, political union must be put in place.
The BBC's economic correspondent Andrew Walker, in London, says that there is
certainly a chance that the summit will take a small step on a path that would
partly deal with the fundamental weaknesses in the Eurozone.
But, in the absence of major short-term action, he explains, borrowing costs
for countries such as Spain and Italy are likely to remain painfully high,
making the eurozone's financial situation strained for a long time to come.