Merkel, Cameron Fail to Bridge Divide on EU Treaty Change, Transaction Tax

Chancellor Angela Merkel and U.K. Prime Minister David Cameron failed to reconcile their differences on German plans for European Union treaty change and a financial transaction tax, as Cameron called for “decisive action” to stem the euro-area debt crisis.

Merkel said changes to EU treaties to allow for greater fiscal integration should be approved only by the 17 nations that share the euro, while Cameron wants changes to be approved more widely to allow him to take back powers from Brussels. Cameron also suggested Germany support calls to allow the European Central Bank to fund purchases of troubled sovereign debt.

“All the institutions of the euro zone have to stand behind and back the currency to defend it,” Cameron said a joint press briefing with Merkel in Berlin today.

The lack of agreement caps a week in which Berlin and London’s divergent views were laid bare over on how to fix the sovereign-debt crisis and overhaul the 27 nation-bloc to make its economy more competitive. Cameron earlier this week rebuffed Merkel’s call for political union in Europe, dismissing it as “utopian visions.”

Merkel signaled that Europe must work with the existing tools to fight the debt crisis, saying that “every day counts” on making the euro-area rescue fund more effective.

Better budget enforcement is needed which “involves limited treaty change for members of the euro zone -- only for them,” she said. The British premier said both countries have different “interests” on the matter.

British Concessions

Cameron wants to use changes to Europe’s governing rulebook to leverage concessions from EU partners that will allow him to appease euro-skeptic lawmakers after overcoming the biggest ever Conservative Party rebellion on the EU last month.

“It’s obvious we don’t agree on every aspect of European policy, but I’m clear that we can address, accommodate and deal with these differences,” Cameron said today. “We had a discussion about the issue of the treaties. Germany has her interests and so does Britain. ”

The disagreement over the implementation of a financial- transaction tax continued after complaints from Cameron last month that the City -- London’s financial quarter -- is under “constant attack” from the EU. The European Commission has proposed a plan that it says would raise 57 billion euros ($77 billion) a year.

Germany has been at the forefront of calls for a European transaction tax, a levy Cameron is only willing to countenance if the U.S. and Asian nations join in to prevent financial services from deserting the City.

Merkel said that while British demands are justified to deploy “great strength” to regain confidence in the euro zone, “you win back credibility by using the strength that you have.”

“You also have to be careful not to feign strength that you don’t have, because the markets will quickly come to realize that it’s not going to work,” she said.

To contact the reporters on this story: Gonzalo Vina in Berlin at gvina@bloomberg.net; Patrick Donahue in Berlin at pdonahue1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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