Merkel: Control, not bonds, will save euro

Enforced rules, not eurobonds, will solve the euro crisis, Germany's chancellor said before meeting Wednesday with France's president, who supports the bonds. The working dinner meeting between Angela Merkel and Francois Hollande at the French Elysee Palace -- a day before the two join the European Union's other leaders in Brussels for a two-day summit on the crisis -- will focus on the summit, "the international situation and future Franco-German exchanges," Hollande's office said in a statement. The meeting will be "an exchange of views" to help "define positions" ahead of the summit, a German government spokesman said. Hollande is widely expected to maintain his pressure to refocus eurozone economic policy on reviving growth and sharing debt. Merkel has said she would insist on austerity and would reject eurobonds and other joint-liability proposals, such as joint deposit insurance. She says such proposals may not pass muster in German's Federal Constitutional Court -- and they may remove pressure on governments and banks to clean up their financial acts. "I say quite openly -- when I think of the summit on Thursday, I'm concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures," The New York Times quoted Merkel as saying Monday. Later Wednesday, in a speech before the German Parliament, Merkel said, "Control and liability must not be disproportionate to one another. Common sharing of debt can only take place when sufficient control has been established." In Madrid, Prime Minister Mariano Rajoy said there was little time left before the EU must act. "We cannot finance at current prices for too long," he said. Yields on benchmark Spanish 10-year bonds, which are used to set rates on other loans, yielded 6.8 percent Wednesday, while comparable Italian bonds yielded 6.2 percent. The yields represent the costs of government borrowing. Yields near 7 percent are considered by many to be unsustainable. The EU summit, which begins Thursday, is the first meeting of European leaders since pro-bailout parties in Greece won parliamentary elections June 17. European Commission President Jose Manuel Barroso said summit stakes must be higher than friction such as that between Germany and France. "We must articulate the vision of where Europe must go, and a concrete path for how to get there," he said. But he added he was unsure "whether the urgency of this is fully understood in all the capitals of the EU." But a senior EU diplomat intimately involved in Franco-German dynamics for 20 years described the friction as part of the relationship pattern. "It's always like this with France and Germany," he told the British newspaper The Guardian. "They always represent different positions and then they find a compromise that everyone else agrees with except the U.K."