French President Nicolas Sarkozy and German Chancellor Angela Merkel were due to meet in Paris Tuesday for key talks on the eurozone debt crisis.
The leaders of the eurozone's strongest economies are to discuss ways to pull debt-ridden countries like Greece and Italy back from the brink, while staving off fears that France and Germany could lose their top-notch AAA credit ratings under the weight of a troubled eurozone.
Weak economic growth figures cast a shadow over the meeting on Tuesday, however, after Germany announced a slower-than-expected 0.1-percent economic growth in the second quarter and Spain added that its economy slowed to 0.2 percent growth.
In response to the latest figures, European stocks tumbled stoking fears of a sharp Europe-wide slowdown.
Investors were watching anxiously to see whether Sarkozy and Merkel would agree on new measures to boost confidence in Europe. But on the eve of the meeting, both leaders talked down the chances of a breakthrough.
Eurobonds off the agenda
Berlin and Paris have both ruled out talk of issuing joint eurozone bonds, or eurobonds, to help the bloc's struggling members raise money on the markets at affordable interest rates.
Speaking to German news magazine Der Spiegel, Finance Minister Wolfgang Schäuble said there would be "no sharing of debts and not an infinite amount of aid [available.]"
German government spokesman Steffen Seibert echoed Schäuble's words on Monday, saying eurobonds would "play no role" in talks between Merkel and Sarkozy.
"The German government does not consider it worthwhile talking about eurobonds at the present time," Seibert said, adding that Germany does not believe it is the "right way" to solve the eurozone crisis.
Bigger fish to fry
After spending all of 2010 and the first half of this year in a struggle to rescue Greece, Ireland and Portugal, the eurozone now faces much greater challenges, as the major economies of Spain, Italy and even France have come under attack from the markets.
Italian Finance Minister Giulio Tremonti has blamed Italy's financial troubles on a lack of eurobonds, telling reporters: "If we had eurobonds, we would not be where we are today."
Some German industry representatives have also come out in support of the idea of common bonds, arguing that eurobonds are the least painful option in the current crisis.
"We need eurobonds with a German signature," Anton Börner, president of the German Export, Wholesale and Services Association (BGA) said Monday.
"At the end of the day, all alternatives to the eurobonds would end up costing us more money," he insisted.
More costs for Germany
Other voices from within Merkel's coalition government have issued stronger warnings against reforming the bloc's structures, emphasizing that common bonds would mean higher interest rates for Germany.
Economy Minister Philipp Rösler told business newspaper Handelsblatt that eurobonds would "reward countries with unsound budgetary policies and adversely affect those that consolidate their budgets responsibly."
"In a Europe where each member state is supposed to take responsibility for itself, I feel that a common eurobond is the wrong approach," said Rösler, adding that the eurozone had to "set incentives for sound budgetary policies to be enacted in all eurozone member states."
Currently, the eurozone's 17 member nations sell their own government bonds independently. Countries with more stable economies offer lower interest rates to lenders than countries considered risky investments.
A brewing storm
Meanwhile, World Bank chief Robert Zoellick on Sunday warned that the eurozone's sovereign debt issues "could turn out to be the most important" challenge facing the world economy.
"We are in the early moments of a new and different storm. It's not the same as 2008," he said in an interview with the Weekend Australian newspaper.
As the storm brews, all eyes remain on Paris. Franco-German initiatives usually set the pace for the eurozone, and France has long been demanding relatively minor reforms such as regular meetings between eurozone leaders.
Merkel and Sarkozy are approaching Tuesday's meeting from very different angles: Merkel is under pressure from Berlin to resist any drastic measures that could threaten Germany's stability, while Sarkozy - facing popularity rates near rock bottom and battered French bank stocks - must produce dramatic results in order to regain Paris' confidence.
Author: Joanna Impey, Charlotte Chelsom-Pill (AFP, Reuters)
Editor: Martin Kuebler