Merkel backs Sarkozy as Greek debt talks on knife-edge

Chancellor Angela Merkel flew to ally President Nicolas Sarkozy's side Monday as Germany and France harmonised recovery plans and talks on writing-down Greek debt reached a tense climax. Merkel and Sarkozy's mutual support day came as the eurozone's total public sector debt fell slightly as a proportion of the bloc's GDP, despite rising in real terms by 25 billion euros to 8.19 trillion euros ($10.68 trillion). This debt represents 87.4 percent of the 17-nation bloc's total economic output in the third quarter of last year, down from 87.7 percent. A small bite would be taken out of this daunting sum if Athens strikes a deal with private lenders on a deal to cut 100 billion euros ($130 billion) from its sovereign debt, along with deeper austerity measures. But, with Greek Prime Minister Lucas Papademos facing cliff-hanger talks with European Union and IMF officials and coalition partners, the country's main two unions called a 24-hour general strike for Tuesday. Labour leaders argue that the public sector cuts being demanded by Greece's international partners amount to "a pending death" for the state, and they demand a return to fiscal sovereignty for the ailing eurozone member. Papademos was to meet officials from the EU, European Central Bank (ECB) and International Monetary Fund around midday, and then the heads of the Greek socialist, conservative, and far-right parties, the premier's office said. Greece is also trying to wrap up three weeks of negotiations with private banks to avoid a historic default in mid-March that could disrupt the 17-nation eurozone and possibly hobble a global economic recovery. Meanwhile, Merkel and the bulk of the German cabinet descended on Paris on a mission to strengthen Sarkozy's reforming resolve and kick-start his struggling re-election campaign. That the pair should chair a 14th joint Franco-German cabinet session was not unusual but the joint television interview that they were to give afterwards was billed as an unprecedented cross-border endorsement. France and Germany were once seen as the twin motor of the European Union but Paris is now clearly the junior partner, its economy lagging behind by any measure and Sarkozy has turned to his fellow right-wing leader for ideas. Sarkozy trails Socialist challenger Francois Hollande in the opinion polls, less than 80 days before the French election, and Merkel fears that a new left-wing French administration will diverge from her austerity plans. Specifically, Hollande has said he will seek to re-negotiate the hard-won eurozone "fiscal compact" that Merkel sees as essential to binding the single currency bloc together behind her deficit-cutting agenda. Sarkozy, still smarting from France's loss of its top AAA credit rating, now cites Germany's success almost daily to justify his own policies, drawing inspiration from both Merkel and her centre-left predecessor Gerhard Schroeder. The leader of Merkel's CDU party, Hermann Grohe, has confirmed that Merkel will support Sarkozy "at campaign events in the spring." The French and German leaders will therefore give a joint interview to their respective public television networks from Paris, after a meeting of their top ministerial teams in Sarkozy's cabinet room at the Elysee Palace. Despite the humiliation of the loss of France's AAA rating, the governments believe the fiscal compact and the creation of a eurozone financial safety net in the form of a permanent bailout fund have contained the debt crisis. Now, they plan to turn to measures to prevent future crises and restart growth -- while keeping a close eye on Greece and other weaker Mediterranean countries in case any backsliding on austerity measures spooks the markets. Monday's talks will concentrate on ways of harmonising corporate tax rates across the Rhine and on plans for a new financial transactions tax. Both support the idea of such a tax -- mocked as "madness" by their British colleague Prime Minister David Cameron, who fears it would drive finance houses out of Europe -- but differences remain. Sarkozy is so determined to burnish his credentials as a reformer in the twilight of his first term that he vowed France will go it alone with a 0.1 percent tax by August. Merkel still hopes for a joint European measure. The French leader also claims German parentage for his plan to boost sales tax in order to fund a reduction in employer social security contributions, a reform he hopes will boost job creation in a stagnant economy. Polls show Hollande taking 28 to 30 percent of votes in the first round, ahead of 23 to 24 percent for Sarkozy. The first round of the election will take place on April 22 followed by a run-off on May 6. Meanwhile, the debt crisis claimed another victim on the periphery of the European economy when Romania's centre-right Prime Minister Emil Boc resigned after days of street protests against his government.