Tags: EU Backs Limited Treaty Change to Ward Off Crises

EU Backs Limited Treaty Change to Ward Off Crises

Friday, 29 Oct 2010 09:18 AM

European Union leaders set in motion on Friday plans to amend the EU's main treaty to create a permanent system to ward off financial crises, and said that a summit deal on new budget rules would strengthen the euro.

They also endorsed tougher sanctions on states that do not keep debt in check and said leaders would aim to agree the steps at a meeting in December.

Analysts said the plans, aimed at raising confidence in the euro and preventing future financial emergencies, face a long and potentially divisive battle to be enacted but appear to be a victory for Germany's push for greater financial stringency.

At a Brussels summit, leaders of the 27 EU states committed the bloc to creating a permanent mechanism to replace a 440-billion euro ($611 billion) emergency safety net for indebted euro zone countries when it expires in mid-2013.

Germany and France also succeeded in overcoming initially fierce hostility to their calls for changes in the EU's Lisbon treaty -- but only after many countries ruled out far-reaching amendments that would have forced them to hold public referendums which would have been likely to fail.

"We are doing everything to ensure that there will never be a repeat of the crisis we have had," German Chancellor Angela Merkel told reporters.

"I think it is important to create a clear culture of stability in Europe. That is the ultimate for good cohesion in the EU. Europe makes us strong but this Europe needs rules."

There was no immediate reaction to the summit agreements from financial markets. Any sign that the EU is backtracking would unsettle investors already worried by debt problems in countries such as Portugal, Greece and Ireland.

Calls by Berlin to suspend the voting rights of countries that breach the budget rules were put on the back burner. But German officials celebrated the fact that the EU had agreed on treaty change that a few months earlier had seemed impossible.

CONCERN ABOUT EXTENDED TALKS

Senior EU sources said European Central Bank President Jean-Claude Trichet reiterated concerns that the budget rules were not tight enough and that drawn-out negotiations on the permanent mechanism could upset markets.

The sources quoted him as saying lengthy negotiations could be a "problem" when the economic crisis is still very deep and markets remain tense.

Although the other 25 member states backed most of the terms of a deal reached by France and Germany on Oct. 18, some smaller countries were left with a bitter taste because it was widely seen as a stitch-up by the EU's two big powers.

A senior EU official said the leaders had agreed not to shelve the voting rights demand entirely only because Merkel could not afford to go home without it still being on the table.

She faces strong criticism in Germany for accepting French demands to water down initial proposals for semi-automatic sanctions on budget rule-breakers in exchange for Paris backing her on treaty change.

"Suspension of voting rights is a complete non-starter but we had to spend a lot of time discussing it because some countries had to use the text (of the conclusions) for political reasons," the senior EU official said.

Even so, agreement on treaty change was a victory for Germany, said Hugo Brady of the Centre for European Reform.

"If the biggest country in the EU wants something, it's probably not unrealistic to say that it's going to get it."

But he warned of battles to come over the issue: "We are going to have a very dangerous diplomatic and legal game now to enact changes to the treaty. There is a danger of tipping the EU into several years of further introspection."

The EU leaders asked Herman Van Rompuy, the president of the EU Council grouping national governments, to explore what treaty changes would be needed to enforce fiscal discipline and the executive European Commission will help prepare the changes.

The leader agreed the amendments would have to be limited and that an existing rule that EU countries cannot assume the debt of another member of the bloc must stay.

The permanent crisis mechanism will involve private investors, the International Monetary Fund and strong conditions on which funds would be lent to countries in need.

© 2017 Thomson/Reuters. All rights reserved.

 
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European Union leaders set in motion on Friday plans to amend the EU's main treaty to create a permanent system to ward off financial crises, and said that a summit deal on new budget rules would strengthen the euro. They also endorsed tougher sanctions on states that do...
EU Backs Limited Treaty Change to Ward Off Crises
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2010-18-29
Friday, 29 Oct 2010 09:18 AM
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