Two of the key leaders in the Eurozone crisis — German Chancellor Angela Merkel and French President Nicolas Sarkozy — unveiled their joint plan yesterday for tighter European Union treaties and strict debt discipline guidelines to help save the troubled currency.

“We need structural changes,” declared Merkel at a joint press conference yesterday. “It’s not possible to do this in the framework of the current treaties.”

“We want to make sure that the imbalances that led to the situation in the euro zone today cannot happen again,” announced Sarkozy. “Therefore we want a new treaty, to make clear to the peoples of Europe, members of Europe and members of the euro zone, that things cannot continue as they are.”

It’s not sure if these tighter treaties will apply to the whole EU or just the 17 eurozone countries. That will depend on an EU summit held this week. “We will see whether it will be 17 or 27. But we’re going full steam ahead to re-establish confidence in the euro and the euro zone,” said Sarkozy.

Merkozy’s — as the press dubs them — deal was a “crucial show of unity”, reports Germany’s Der Spiegel. The Guardian announced that Merkozy had “struck a grand bargain that they hope will save the euro.”

The leaders are calling for automatic sanctions to be built into EU treaties for countries that breach the agreed deficit ceiling of 3% GDP. There’s also a push for balanced budgets to become enshrined in a nation’s constitution, ensuring good long-term economic management.

Don’t underestimate how critical this announcement could be, writes Gabriele Parussini and William Horobon in The Wall Street Journal:

“It marked an important step in a carefully orchestrated strategy to rebuild confidence in the euro zone, which some policy makers hope will be enough to persuade the European Central Bank to proceed with massive intervention in government-bond markets, aimed at stabilizing the crisis and restoring investor confidence in the region.”

This may be the beginning of the end of the debt crisis, says Bruce Crumley in TIME, but there’s still a few questions remaining:

“…despite the bolder contours of their proposed rescue project, gray areas about how (and whether) the joint initiative will work remain — chief among those being whether the new actions will be demanded of all 27 EU countries, the 17 members of the euro zone, or only a portion of that later group.”

Not that the duo agree with each other on everything. When examining important debt speeches that the two made last week, Charlemange at The Economist noticed some key differences:

  • Mr Sarkozy places the emphasis on “solidarity” among European states (ie joint Eurobonds and no defaults or debt-restructuring after Greece), while Mrs Merkel gives priority to budgetary discipline and rules
  • Mr Sarkozy urges the European Central Bank to act; Mrs Merkel is jealous of guarding its independence
  • Mr Sarkozy wants to create a hard core of euro-zone countries within the European Union; Mr Merkel wants to include as many non-euro states as possible
  • Mr Sarkozy wants Europe to integrate through the action of leaders (reproducing France’s presidential system, with lots of discretion for the executive); Mrs Merkel favours more independent institutions like the European Commission and the European Court of Justice (more akin to Germany’s federal structure, which restricts politicians’ leeway)

But the latest Merkozy deal brings together parts of what each leader has been pushing for for months, notes Charlemagne at The Economist in a more recent piece:

“It is unclear whether even the Franco-German compromise deal can be secured outside the EU’s treaties. Without the European Commission, who would be in charge of monitoring budgets? But the intention is clear: it is a warning to Britain, Poland and other euro “outs” not to make too much of a fuss or risk finding themselves isolated.

In any case, Mr Sarkozy has notched up another victory in his quest for a more exclusive hard core of euro-zone countries: he secured Mrs Merkel’s agreement to monthly meetings of the 17. Just a few weeks ago, the talk was of two euro-zone summits a year, not 12.

Expect a stormy summit.”

Many issues must be resolved by the next summit, and although Merkozy agree with each other, it doesn’t mean everyone else does, notes Michael White in The Guardian:

“Politics will play a crucial role, national politics, but an uncertain one. Merkel is secure at home but cautious. She has not been frank with German voters about their own country’s failures and indulged the misplaced sense of superiority that the creditor always enjoys for a while.

Sarkozy is fighting for re-election this spring and sees what has happened to neighbouring governments — including Britain — when voters have cast a verdict on their post-recession performance.”