France and germany fall out over euro rescue fund

Germany and France carry a quarrel over the euro rescue fund and a revamp of economic management into today’s European summit intended to sketch a path out of the debt crisis.

The euro region’s two leading economic powers are at odds over possible bond buybacks and a “competitiveness pact” that is German Chancellor Angela Merkel’s condition for strengthening the safety net for debt-strapped countries, according to three European officials involved in the talks who declined to be identified because the deliberations remain private.

Signs of discord snuffed out a three-day rally in European bond markets yesterday and knocked the euro off a three-month high, as investors questioned when Europe will come up with an anti-crisis formula. European Central Bank President Jean-Claude Trichet prodded governments to act, saying yesterday the rescue fund must “be as flexible as possible and also to be as effective as possible in terms of magnitude.”

Source: Bloomberg