European finance ministers, who have just hammered out a massive rescue plan for Greece, will hear controversial calls from Germany at a meeting tomorrow for changes to the Lisbon treaty to give Brussels powers to co-ordinate national budgets.
Ms Merkel believes that the EU should have stronger powers to organise the “orderly insolvency” of countries such as Greece that set giveaway budgets with no means of paying for them. After announcing a ban on speculative share trading in Germany’s top financial institutions and the bonds of eurozone countries until next March, she warned: “This challenge is existential and we have to rise to it. The euro is in danger. If we don’t deal with this danger, then the consequences for us in Europe are incalculable . . . If the euro fails, then Europe fails.”
Her apocalyptic warning came as David Cameron prepared for his first visit as Prime Minister to Paris and Berlin, where he is likely to come under pressure to commit more British funds to EU bailout programmes.
His desire to build relations with Ms Merkel will be tempered by his reluctance to see any more powers transferred to Brussels. However, with 54 per cent of Britain’s exports going to Europe, the economy is not immune to the effects of the euro’s problems.
Ms Merkel may have intended her words to be a rallying cry to stop the crisis of confidence spreading from Greece to Portugal, Spain and Italy. But the markets were shaken because Germany is seen as the bedrock of the euro, which was introduced just ten years ago and now covers 16 countries.
Fears are growing at the highest level in the European Commission over the size of Italy’s national debt and its ability to cope if markets turn on it. Further turmoil is possible today as Asian investors prepare to dump huge amounts of euros on the market.
Wolfgang Schäuble, the German Finance Minister, called for an urgent rewriting of the eurozone rulebook. He told the Financial Times: “I’m convinced the markets are really out of control. That is why we need really effective regulation, in the sense of creating a properly functioning market mechanism.”
Mr Cameron will meet President Sarkozy of France tonight and Ms Merkel tomorrow. He will resist her demand to reopen the Lisbon treaty to beef up European Commission powers to scrutinise national budgets.
Herman Van Rompuy, the European Council President, called the finance ministers’ meeting in response to Ms Merkel’s demands for a treaty change. Michel Barnier, the EU Commissioner for Internal Markets and Financial Regulation, said: “It’s important that member states act together.”