GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

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German Chancellor Angela Merkel and French President Nicolas Sarkozy met Tuesday in Paris to come up with a joint strategy on addressing fears about the euro currency. Their meeting was notable for what didn't come out of it for as much as what did, according to one veteran analyst. We asked Bruce Stokes, senior transatlantic fellow for economics at the German Marshall Fund of the United States, for explanation. Answers have been edited for length.

What's your takeaway from the Merkel-Sarkozy meeting?

BRUCE STOKES: I think that it both raised some issues that were surprising and more forward-leaning than we anticipated and dodged some issues. They have proposed a financial transaction tax, which has been kicking around some time in Europe and the French had been pushing. The significance of this is indicated by the fact that the stock market in the U.S. dropped after this was suggested.

But the reality is -- just as Willie Sutton said, "I rob banks because that's where the money is" -- you tax financial transactions because that's where the money is. The Europeans need money, and there's an argument to be made that the financial sector had caused some of the problems we're in. So there's a practical and a moral reason to tax them, but this is highly controversial. And the fact that the French and the Germans now agreed to go forward with this idea when the Germans were very reluctant to be involved in this suggests that the meeting was of some import.

Fifty-seven percent of the revenue of the overseas affiliates of American companies comes from Europe. If the European economy were to go back into recession, that would take a huge hit.

Second, they have talked about a common corporate tax between Germany and France. Corporate taxation in the European Union has always been an issue because there are wide variances in the level of taxation -- hugely controversial. The fact that the two largest economies in Europe said they're going to come up with a common corporate tax is not only important to Europe but it's a signal to the U.S. that as we consider reducing our corporate taxation and trying to make it more competitive, we're going to have to watch what the Germans and the French do because that's a market now of over 100 million people who have a similar corporate tax rate, a similar base for the taxation, and we'll want to stay in line with that.

The Europeans also talked about some process issues. They talked about a eurozone president -- a single person to call, in theory, if the other eurozone members go along with that. It would help with the coordination of policy both inside Europe, and between Europe and the United States.

What they didn't talk about is equally important. They did not talk about creating a euro bond, which is highly controversial. The French are pushing it, the Germans were very reluctant -- although they seem to be behind the scenes moving in that direction. And this would be a common way for all the countries of Europe to raise money. It would lower the cost of borrowing from places like Portugal and Greece. It would raise the cost of borrowing from people like Germans, that's why they're against it. But there are leaks coming out of Germany that the government is beginning to move in that direction, but clearly they're not ready to go there yet.

Read the complete transcript here.