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Spain applauds Franco-German euro integration plans

Source: Reuters - Wed 17th Aug 2011

Spain and Italy, under the market microscope over debt servicing costs, welcomed Franco-German proposals for a more integrated euro zone on Wednesday and said they hoped the plans would usher in region-wide bonds.

In Madrid, a government spokesman Tuesday's declarations by French President Nicolas Sarkozy and German Chancellor Angela Merkel increased chances of common euro bond issuance - seen by some as the only way to ensure financing for the region's debt-laden states.

"The more we move toward the integration of economic policy, the closer we get to the idea of euro bonds," ruling Socialist party spokesman Jose Blanco said in an interview on national radio.

The leaders of the euro zone's top two economies pledged after a meeting to defend the euro and laid the groundwork for future fiscal union, but stopped short of increasing the bloc's EFSF rescue fund and said common bonds would have to wait.

Spain, the euro zone's fourth biggest economy, last year enforced spending cuts and rushed through labor reforms to avert a Greek-style bailout. But market nerves about sluggish growth and high unemployment have kept the country's borrowing costs uncomfortably high.

In Italy, Fabrizio Cicchitto, head of Prime Minister Silvio Berlusconi's PDL party in parliament's lower house, said the government was on the same wavelength as Merkel and Sarkozy and hoped the German leader would warm to plans for a euro bond.

"We hope that Merkel will be convinced of the value of euro bonds in September," he said.

Investors are likewise concerned about Italy's ability to pull itself out of a chronic growth problem exacerbated by an accelerated austerity program aimed at plugging its budget deficit.

Merkel and Sarkozy also proposed taxing financial transactions, and the French president said the countries' finance ministers had been asked to prepare proposals aimed at having a common corporate tax base and tax rate in France and Germany from 2013.

The two leaders want a president to be elected to represent the euro zone and twice-yearly meetings of the leaders of the 17-nation bloc.

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