France and Germany have reached a “comprehensive” agreement on new fiscal rules for the beleaguered eurozone, as a package of measures designed to save the single currency begins to take shape.
The proposals, which include a commitment not to force private sector bondholders to take losses as they did in Greece, were welcomed by financial markets. Italy’s benchmark 10-year borrowing costs fell below 6 per cent for the first time since October while Spain’s came close to 5 per cent in a day of huge drops in their rates.
The agreement was announced by German chancellor Angela Merkel and French president Nicolas Sarkozy, along with tough budgetary measures drawn up by Mario Monti’s new Italian government. They are a key element in the “fiscal compact” demanded by the European Central Bank to enforce budgetary discipline in the debt-saddled single currency region.