23 EU nations agree to new treaty to save euro
BRUSSELS - The Associated Press
Britain's Prime Minister David Cameron (R) looks at Germany's Chancellor Angela Merkel (L) at a European Union summit in Brussels December 9, 2011. REUTERS PhotoThe 17 countries that use the euro, plus six of their European Union partners, agreed Friday to an ambitious treaty tying their finances together in the hopes of solving Europe's debt crisis. At the same time, opposition led by Britain created a deep rift in the union.
In drafting a new treaty, the 23 countries hope to help European nations struggling with giant debts, and in that sense there were early indications of success. Such an agreement is considered necessary before the European Central Bank and other institutions commit more money to lowering the borrowing costs of heavily indebted countries like Italy and Spain.
"It's a very good outcome for the euro area, very good," ECB President Mario Draghi said in Brussels. "It is going to be the basis for much more disciplined economic policy for euro-area members. And certainly it is going to be helpful in the present situation." Stocks and the euro climbed. The Stoxx 50 of leading European shares and Dow futures both rose 0.7 percent, and the euro was trading 0.5 percent higher at $1.3413.
But Draghi has yet to say whether the European Central Bank will take more aggressive action to buy the bonds of heavily indebted countries, and borrowing costs for European governments were slightly higher Friday.
While the deal could help save the euro, the political implications of the rift are enormous. Germany and France had hoped to persuade all 27 EU countries to agree to change the treaty that governs their union. But Britain, which doesn't use the euro, led the push. Hungary, the Czech Republic and Sweden said they were undecided, though the prime minister said Swedish participation was unlikely.
Britain's leaders argued that the revised treaty would threaten their national sovereignty and damage London's esteemed financial services industry. Germany and France, the eurozone's biggest economies, made clear that a deal among the 17 euro countries and whoever else wanted to join was better than nothing.
"We're not in the euro and I'm glad we're not in the euro. We're never going to join the euro and we're never going to give up this kind of sovereignty that these countries are having to give up."
"David Cameron made a proposal that seemed to us unacceptable, a protocol to the treaty that would have exonerated the United Kingdom from a great number of financial service regulations," Sarkozy said shortly before dawn, after what he called a "difficult" dinner meeting had dragged through the night.
Cameron defended his stance.
"What was on offer is not in Britain's interest so I didn't agree to it," he said. "We're not in the euro and I'm glad we're not in the euro. We're never going to join the euro and we're never going to give up this kind of sovereignty that these countries are having to give up." The new agreement and the new rift came on a now-clouded anniversary, 20 years to the day after the treaty that led to the creation of the euro was drafted. That agreement, in turn, grew out of ambitous post-World War II efforts to unite a bloodied continent.
The treaty will constitute unprecedented intervention in national budgets by a central European body.
Participating governments will need to have balanced budgets which is calculated as a structural deficit no greater than 0.5 percent of gross domestic product and will have to amend their constitutions to include such a requirement. An unspecified "automatic correction mechanism" will punish countries that break the rules.
In addition, countries that run deficits larger than 3 percent will face sanctions.
To prevent such deficits, countries will have to submit their national budgets to the European Commission, which will have the authority to request that they be revised. Countries will also have to report in advance how much they plan to borrow.
After a brief morning break, the leaders were back in meetings Friday to work out the details of their new "intergovernmental accord," including specifying how violators will be prosecuted. They want it written by March.
Complicating their negotiations, Cameron threatened to prevent EU bodies, such as the European Commission and the European Court of Justice, from taking on responsibilities of enforcing treaties made by fewer than all 27 members.
"The institutions of the European Union belong to the European Union, belong to the 27" member states, he said.
But German Chancellor Angela Merkel said the deal is a good one.
"I have always said the 17 states of the eurogroup have to regain credibility," she said. "And I believe with today's decisions this can and will be achieved." Germany and France insist that the best way to regain market trust is to beef up financial governance of the eurozone countries and their budgets.
But most economists agree that won't be enough: To regain the trust of investors in the short term, they say, the eurozone needs to have enough money on hand to guarantee that countries won't default on their debts.
Toward that end, Herman Van Rompuy, president of the European Council, said the eurozone, together with some other EU countries, would provide up to 200 billion ($268 billion) in extra resources to the International Monetary Fund, to be used to help European countries in dire straits. Non-euro countries Sweden and Denmark are among those contributing.
There was no immediate agreement on boosting the eurozone's own bailout funds, meant to rescue countries having trouble refinancing their debts. In their statement, the currency union's leaders put it off until March to decide whether their rescue funds need to be able to provide more than 500 billion in help to struggling countries.