They also pledged to push for a new tax on financial transactions, and for regular summit meetings of the zone’s members under the leadership of Herman Van Rompuy, who heads the council of all 27 European nations.
“We are certainly heading for greater economic integration of the euro zone,” Mr. Sarkozy said.
The much-anticipated meeting at the Élysée Palace here produced little that would seem to quell the nerves of bond traders, who are becoming increasingly worried that the economic slowdown in both Germany and France will make it harder to overcome Europe’s debt crisis.
Both leaders ruled out issuing collective bonds, known as eurobonds, to share responsibility for government debt across member states, and they opposed a further increase in a bailout fund that will not be put into place until late September at the earliest.
Mrs. Merkel repeated that there was “no magic wand” to solve all the problems of the euro, arguing that they must be met over time with improved fiscal discipline, competitiveness and economic growth among weaker states.
Even the stronger members of the euro zone have stalled. Official figures released on Tuesday showed that growth in the zone fell to its lowest rate in two years during the second quarter, and that Germany — considered the Continent’s locomotive — came almost to a standstill, growing 0.1 percent.
The German figures followed data showing that the French economy was flat in the second quarter, leaving Europe’s two largest economies stagnant. That means the two pillars of the European economy may be less willing and able to prop up their weaker counterparts, analysts warned.
Across the euro zone, gross domestic product rose only 0.2 percent in the second quarter from the first, when growth had advanced by 0.8 percent, according to Eurostat, the European Union’s statistics agency.
The joint French-German proposals were as modest as German officials had forecast. And the most ambitious idea — that all euro zone states legally bind themselves to working toward balanced budgets and reduced sovereign debt — is unlikely to be accepted by all member states. It may not even get through the French constitutional process, since Mr. Sarkozy does not have a constitutional majority in Parliament.
The proposal calling for twice-yearly meetings and increased integration could formalize the “two-speed Europe” — of those in the euro zone and those outside it — that many warned of when the European Union expanded so rapidly after the collapse of the Soviet Union in the early 1990s.
Both leaders said that France and Germany must set an example, citing their agreement to propose jointly a financial-transaction tax by 2013 as “an example of convergence” needed in the entire euro zone. But such a tax is unlikely in the larger European Union, especially if Britain, which is outside the euro zone and contains Europe’s biggest financial center, continues to resist the idea.
They also said they would work to harmonize French and German economic assessments and, in the future, corporate tax rates.
“France and Germany are committed to strengthen the euro,” Mrs. Merkel said. “To that end we need to better integrate our economies” and “to see that the stability pact will be acted on.”
The stability pact, a central element of the treaty that established the euro zone, commits members to keep fiscal deficits to 3 percent of gross domestic product a year and total sovereign debt under 60 percent of G.D.P. Both benchmarks are regularly missed.
The Sarkozy-Merkel meeting came after a dizzying week in the markets and a general gloom about the lack of European leadership on the euro. Economists said the weak data could simply reflect a pause after two years of brisk expansion. But the numbers could also signal that the sovereign debt crisis is undercutting growth outside the countries like Spain that are most directly affected.
“The longer the sovereign debt market remains stressed, the greater will be the damage to the wider economy,” Lloyd Barton, an economist, said in a note Tuesday.
If there was any silver lining, it was the hope that slower growth would lead to less inflation, giving the European Central Bank more leeway to keep interest rates low and intervene in bond markets. Since last week, the bank has been buying Italian and Spanish debt on the open market to hold down yields so the two countries do not face ruinous borrowing costs.
The euro dropped to $1.4362 at 10:19 a.m. in Tokyo from $1.4407 in New York yesterday. The shared currency weakened to 110.19 yen after slipping 0.3 percent to 110.65 yesterday. The dollar bought 76.72 yen, compared with 76.80 yen yesterday.
German Chancellor Angela Merkel and French President Nicolas Sarkozy also rejected an expansion of the 440 billion- euro ($632 billion) rescue fund .
Transaction Tax, Inflation
The leaders of Europe’s two biggest economies agreed to press for closer euro-area cooperation, tougher deficit rules and a harmonization of their corporate tax rates. A plan to resubmit a proposal for a financial-transaction tax, which the European Union rejected in 2010, sent stocks lower in the U.S. and Asia.
The MSCI Asia Pacific Index of regional shares lost 0.3 percent. The Standard & Poor’s 500 Index sank 1 percent yesterday.
The rejection of euro bonds coupled with the announcement of a financial transaction tax “could weigh on European equity and bond markets on Wednesday,” BNP Paribas SA strategists including Ray Attrill in New York wrote in a note to clients today. The tax plan “could fall flat, but the uncertainty factor will likely linger and weigh on the euro.”
European consumer prices fell 0.6 percent in July after flat readings for May and June, the European Union’s statistics office in Luxembourg is forecast to say, according to the median estimate in a Bloomberg News survey. Annual inflation in the euro region slowed to 2.5 percent from June’s 2.7 percent reading and in line with a July 29 initial estimate, the survey predicted. That still exceeds the European Central Bank’s 2 percent ceiling for an eight month.
Kiwi Declines
The New Zealand dollar weakened against all of its 16 major counterparts after Fonterra said milk powder fell at auction to its lowest level since Aug. 3 last year. Milk powder for October delivery declined to $3,359 a metric ton from $3,477 two weeks earlier.
The so-called kiwi also declined along with the Australian dollar as concern that the global economic recovery is losing momentum curbed demand for higher-yielding assets.
“There are all sorts of hurdles around in global markets,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “That will hurt risk appetite and that would hurt Aussie and kiwi in particular.”
New Zealand’s dollar fell to 83.20 U.S. cents from 83.61 cents and slipped to 63.84 yen from 64.21 yen. The so-called Aussie decreased to $1.0448 from $1.0486.
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