Sarkozy And Merkel Plan Eurozone 'Government'

France and Germany have proposed "collective economic goverment" for the eurozone after European investors sought reassurance from the two countries' leaders.

French President Nicolas Sarkozy and German Chancellor Angela Merkel want balanced budget laws to be established in all eurozone countries.

It was revealed after the pair met in Paris for talks on the issue, with markets anxious for signs they have a plan to restore stability in the region.

Sky's economics editor Ed Conway said: "They needed to come out with some sound and fury, without conceding they were doing extra radical moves.

"What they've done in essence is to promise some radical measures. They're looking at this eurozone government.

"They've promised there's going to be a financial transaction tax. However, when they were asked later on in the press conference whether there would be these eurobonds, which everyone is talking about... they said that wasn't on the agenda any time soon."

The meeting came as new figures show Germany's economy has lost its "dynamism" and has all but stalled in recent months, putting further pressure on the eurozone.

The quarterly GDP growth figure of only 0.1% was way below expectations and is significantly lower than the 1.3% growth recorded in the previous three months.

It means the German economy is growing at half the rate of the UK's, which saw 0.2% expansion for the quarter.

According to Germany's national statistics agency, reduced consumer spending and less investment in construction projects was to blame for the slowdown.

"The dynamism in the German economy has cooled significantly since the robust start to the year," the agency said.

Until now Germany's economy, Europe's biggest, had been growing strongly thanks to exports all round the world, especially in developing countries.

Its industrial strength had helped shield it from the sovereign debt crisis that is afflicting the 17 countries that use the euro.

Stock markets in Frankfurt, Paris and London all lost ground following the release of the weak GDP figure, but gained some back some ground in the afternoon.