Money woes trouble old allies Merkel, Sarkozy

[October 24, 2011]  BRUSSELS (AP) -- They were so close at one point that people started calling them "Merkozy" -- but you can always count on money to break up a beautiful relationship.

German Chancellor Angela Merkel and French President Nicolas Sarkozy still talk on the phone every day and meet plenty for dinner. But nowadays, as yet another summit of European leaders approaches Wednesday, they mostly just discuss the finances that divide them -- some hundreds of billions of euros.

Since its inception over half a century ago, the European Union has counted on the strong bond between former enemies Germany and France to take the lead and create an ever stronger bond.

With the financial crisis, that center is under ever more pressure. And it shows.

The "Merkozy" relationship had been headed downhill for a while. As the euro crisis has dragged on from one summit to the next, through ups and downs of market volatility, the neighboring leaders have loosened their embrace.

Merkel and Sarkozy stood side by side at Sunday's EU summit to face the international media, presenting a united front as they struggled to find a common solution to the financial turmoil that has become the European Union's most divisive issue.

"Faced with this unprecedented financial crisis that the euro faces, it is of capital importance that France and Germany speak in one voice," Sarkozy said.

Their common message, though, was that they failed to make any tangible progress and pushed all decisions off until another hastily called summit on Wednesday.

That's pretty risky, because since the summer, markets have been pouncing on every delay in decision-making or show of hesitancy in the euro crisis.

And so the pressure has increased for Sarkozy and Merkel to come through with strong proposals that the rest of the EU will almost inevitably have to follow.

"The determination of the Chancellor and myself is absolutely total," Sarkozy said.

But there is no denying their two nations have different agendas in the crisis.

Merkel takes the frugal, hard-nosed line, trying to protect taxpayers as much as possible from having to bail out profligate nations like Greece. She also cherishes the independence of the European Central Bank and wants to keep it out of the EU rescue fund. As the biggest EU funder, Germany has the most clout.

France has the EU's second-biggest economy, but Sarkozy has to worry about French banks that are heavily involved in several EU nations teetering on the edge of bankruptcy. He is desperately trying to protect those financial institutions from losing too much money in the crisis since that could affect his chances of re-election in May.

But France's woes could easily become a German problem, too. If France is forced to help out its banks, its own AAA-rating could come under threat, driving up Paris' borrowing costs and potentially destabilizing the entire eurozone rescue architecture. So in the end, no matter how much they disagree, their fates are intertwined.

Those hopeful for a thaw in French-German ties this week will note that the two leaders' four-year relationship has endured its share of ups and down.

As soon as Sarkozy was elected in 2007, he immediately crossed the Rhine to begin a beautiful friendship.

Soon though, he and Merkel fought over budgetary measures -- money again. But Europe often reunited them, like last October, as they agreed on measures to stave off debt and insolvency on the Normandy beach resort of Deauville and capped it off with a boardwalk stroll.

Early this year, their synergy dominated a European summit to announce a common initiative to back the euro currency and improve competitiveness for all eurozone members.

Still, things did not work out as planned, and the crisis has since gone from bad to worse.

The problems have become so severe that Sarkozy traveled to Frankfurt to meet Merkel last week and missed the birth of his own daughter with first lady Carla Bruni. On Sunday, Merkel gave a Steiff teddy bear to Sarkozy for newborn Giulia.

And all shades of their common history were visible Sunday.

When Sarkozy insisted that Europe had to resolve Greece's woes through a voluntary deal with the banks, Merkel just said the solution had to be "sensible," -- her omission of the word "voluntary" a silent signal of discord.

Then they rekindled some old magic when Sarkozy deflected a question about Italian Prime Minister Silvio Berlusconi with a mischievous smile to Merkel. The Chancellor promptly criticized Italy for its budgetary performance.

Merkel also sympathized with Sarkozy upon learning about France's loss Sunday in the World Cup final of rugby, not a sport she is known to follow.

"We all suffered a little bit with you," she told him.

[Associated Press; By RAF CASERT]

Gabriele Steinhauser contributed to this report.

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