Sarkozy, Merkel Call For Penalizing Excessive Deficit Countries
Wednesday August 17 2011 | 07:41 AM

France and Germany Wednesday upped the pressure on their euro zone peers to improve fiscal discipline in the bloc, proposing that the region's wayward spenders should be cut off from key European Union transfer funds.

In a letter sent to European Council President Herman Van Rompuy, French President Nicolas Sarkozy and German Chancellor Angela Merkel recommended that payments from the EU aid fund's to euro area members states with "excessive budget deficits" be suspended.

They also said that money from EU structural and cohesion funds should not used by euro area countries receiving bailout money. Instead, that money should be pooled in a new fund to be managed by the European Commission in order to bolster growth and improve competitiveness in the euro zone.

The proposals are part of a wider initiative unveiled Tuesday by France and Germany to improve governance in the euro zone in a bid to ease market fears that debt woes from the region's weakest peripheral countries will spread to the core of the region.

Among Sarkozy and Merkel's main proposals is the creation of a new job of euro zone president to help better coordinate macro economic policies in the bloc, to hold regular meetings of euro zone leaders and to closely coordinate French and German budget planning.