Fri, Oct 29, 2010 - Page 6 News List

EU headed for showdown at economic crisis summit

NEW RULES:A controversial deal between France and Germany could derail a package of proposals that aims to strengthen economic governance throughout the EU


The EU headed into a showdown summit yesterday determined to draw up new rules to avoid economic crises but divided on a risky Franco-German drive to write them into a new treaty.

“Last spring we took courageous decisions, we won the battle of the euro,” said EU President Herman Van Rompuy, referring to the bloc’s bailout of embattled partner Greece in May.

“Today we show we can draw the lessons of the crisis,” he said as leaders of the 27-nation bloc headed into a potentially hot summit.

Top of the agenda at the two-day talks starting at 3pm GMT was a package of proposals hammered out over months of talks that aims to strengthen economic governance across the bloc of half a billion people.

However, a controversial last-minute deal between France and Germany threatens to send Europe’s bid to deter future financial crises badly off course.

Diplomats say a compromise opening the way for tweaking the rules in the future, however, remains possible.

The Paris-Berlin option, which has whipped up a storm, calls for changes to the hard-fought Lisbon treaty governing the union, a document that took a decade of tough negotiations before coming into force in December last year.

German Chancellor Angela Merkel and French President Nicolas Sarkozy want the Lisbon treaty reopened to set up a permanent rescue fund for members in the red and to be able to punish chronic over-spenders by withdrawing their voting rights.

The specter of reopening the treaty after years of failed referendums and fractious get-togethers appears to have few supporters.

Luxembourg Foreign Minister Jean Asselborn warned of “a risk that we will be plunged back into months and years of navel-gazing.”

Jean-Claude Juncker, who heads the 16-nation group of eurozone finance ministers, said in an interview released yesterday: “The withdrawal of voting rights for budget-sinning countries isn’t a possible way forward and I reject any changes to the EU treaty in this case.”

Germany, the bloc’s leading economy and biggest budget contributor, has long demanded harsher sanctions against public debt and deficit offenders and last week won France’s support.

In exchange, Merkel signed on to Sarkozy’s push to make permanent to a trillion-dollar rescue fund created in the aftermath of the Greek crisis and due to expire in 2013.

Germany, which contributed the lion’s share to the European Financial Stability Fund, says it cannot contribute to a permanent fund under the current rules of the treaty without risking hostile action from its powerful Constitutional court.

European leaders nonetheless are expected at least to rubber-stamp a plan outlined by finance ministers last week to tighten budget discipline by slapping tougher sanctions more quickly on offenders than in the past.

Other topics on the agenda are reaching a common position on the upcoming G20 summit as well as the Cancun climate conference.

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