Merkel, Sarkozy kick off year of eurozone wrangling

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German Chancellor Angela Merkel hosts French President Nicolas Sarkozy on Monday, kicking off a week of high-level talks to lay the groundwork for a crunch EU summit on taming the eurozone crisis.

The duo at the heart of European efforts to stem the debt-driven turmoil threatening the single currency will gather in Berlin for their first monthly tete-a-tete in what is certain to be a rocky year.

For while Merkel and Sarkozy had made a show of unity in recent weeks, strategic differences began to emerge over plans to introduce a financial transaction tax in the European Union.

Sarkozy, who is facing an uphill battle for re-election this year, said France would charge ahead and roll out the tax on its own if necessary to set an example for Europe.

"We won't wait for others to agree to put it in place, we'll do it because we believe in it," he said Friday after talks in Paris with Italian Prime Minister Mario Monti, who urged France not to go it alone.

Berlin also resisted Sarkozy's call, saying it was still trying to build the broadest possible consensus for the tax, seen as a revenue generator and a penalty on speculation, in the face of fervent opposition from Britain.

"We would like to see a global financial transaction tax but that is not possible at the present time. The German government would thus aim to introduce the financial transaction tax within the EU," Merkel's spokesman Steffen Seibert told reporters.

The European Commission has adopted plans for the so-called 'Robin Hood tax' but support would need to be unanimous among the 27 member states for it to be introduced across the EU.

Germany, which has said it could live with a tax applying only to the 17-member eurozone, said the issue was one of several on the agenda of Monday's meeting.

"It is mainly about preparing the European summit at the end of January and its goal is to debate measures to boost competitiveness and growth," Seibert said.

Wednesday will bring Monti to Berlin for talks. Monti, a former eurocrat who has been critical of a Franco-German axis spearheading European reforms, has scrambled to restore Italian credibility in the post-Berlusconi era and passed a draconian austerity plan.

He has urged a 'united, joint and convincing response' to the debt crisis from the EU, stressing that troubles on the bond markets for Italy as the eurozone's number three economy were linked to wider European difficulties.

And he has called for boosting the size of the European rescue fund, a bid Merkel has rebuffed. Monti said Friday he would welcome Sarkozy and Merkel in Rome on January 20, three days before a eurozone meeting and 10 days before EU leaders gather in Brussels.

The summit will focus on hammering out a 'fiscal compact' to tighten up budgetary discipline for all member states except Britain, which has opted out.

As uncertainty continues to rattle markets, EU leaders have set an ambitious timetable and hope to adopt the new rule book at another gathering in March.

The accord, which is to include automatic sanctions that can only be blocked by a majority of powerful states, aims to end past practices of overspending responsible for the two-year-old debt crisis ravaging Europe.

As if to underline the urgency of decisive political action, the eurozone hit a barrage of gloomy economic news in the first week of the year with joblessness hovering at a record high, retail sales down, and consumer and business confidence slumping as recession stalked the bloc.

Meanwhile the euro tumbled to another 16-month dollar low Friday, falling under the $1.27 mark.

A further item on the agenda of both Berlin meetings was likely to be Hungary, Seibert said, after the International Monetary Fund and EU officials broke off talks last month about a possible credit line due to worries about a contested law threatening the independence of the central bank.

On Friday Fitch ratings agency joined Moody's and Standard & Poor's in downgrading Hungary's debt to 'junk' status.