Merkel, Hollande rift on banking union deepens

The leaders of Germany and France clashed over plans to monitor Europe's crisis-hit banks Saturday, overshadowing anniversary celebrations of a symbolic step in their post-war reconciliation. German Chancellor Angela Merkel and French President Francois Hollande had gathered at the Baroque palace in Ludwigsburg, southwestern Germany, where Charles de Gaulle gave a watershed speech to German youth in 1962. But despite affirmations that European unity was the only way out of the debt turmoil lashing the euro, they differed over a key plank of crisis-fighting: tighter checks on the European banking sector. "I support a banking union, it is an important measure and we must proceed step-by-step," Hollande told reporters, while stressing that such a framework should be in place "the earlier the better". Merkel, for her part, said Berlin also backed European oversight of lenders but urged a more cautious approach, saying haste could prove costly. "For me it is important that quality is ensured. It is pointless to do something very quickly that in the end doesn't work," she said. "It must be thorough, it must be of good quality and then we'll see how long it takes. We will get our finance ministers to work with each other on it as quickly as possible." EU leaders agreed the new bank supervision system in June as part of a deal to allow the bloc's rescue funds to lend directly to stricken banks instead of passing aid through countries and so adding to their debt woes. It is a first step towards a banking union and dovetails with moves towards the deeper economic and political cooperation aimed at taming the debt crisis which has brought the eurozone economy to a standstill. But the proposal has driven a wedge between Germany and France, the team that sees itself as the engine of European integration. While France would like to hand the European Central Bank power to supervise all 6,000 eurozone banks from January, Germany would like it to keep an eye just on big banks and is in little hurry. Merkel and Hollande were celebrating the day 50 years ago when De Gaulle spoke to young Germans, in their own language and without notes, and offered a new beginning in bilateral ties. Under grey skies, Hollande told an audience of French and German citizens that European unity was the only way out of the eurozone's troubles. "The only response to the crisis is Europe, it is Europe that will beat the crisis," he said, delivering the speech in French byt wrapping it up with a few words in German: "Long live the Franco-German friendship!" Merkel finished her own speech with a line in French: "Long live Franco-German youth, long live European youth!" Merkel and Hollande, who have struggled to keep their initial friction to a minimum since the president took office in May, also discussed a mooted merger between EADS and Britain's BAE to create the global aeronautics sector leader. France and Germany hold major stakes in EADS, while the British state has a golden share in BAE that allows it to veto deals that it perceives not to be in the public interest. Berlin and Paris have taken a wait-and-see approach, with some officials arguing that the bigger company would be more competitive while others worry the fusion could end up costing good jobs. The two groups have until October 10 to finalise the project or abandon it. Merkel said that as expected, she and Hollande had "not taken a decision" but added: "The discussions were good and in a spirit of friendship but we do not need to discuss the details in public, particularly when it comes to jobs". Hollande said France and Germany would continue to "work closely together" and aimed to meet the October 10 deadline. Saturday's festivities were the latest in a series of events celebrating 50 years of partnership between the wartime foes, now the EU's two biggest economies.