December 9, 2011
ANGELA CHARLTON, GABRIELE STEINHAUSER
BRUSSELS (AP) — The European Union said Friday that 26 of its 27 member countries are open to joining a new treaty tying their finances together to solve the euro crisis. Only Britain remains opposed, creating a deep rift in the union.
In marathon talks that lasted all night and into Friday, leaders of the 17 countries that use the euro gradually persuaded nearly all the other EU nations to consider joining the new treaty. Some countries may face parliamentary opposition to the pact, which would allow for unprecedented oversight of national budgets.
Stocks and the euro climbed on the news of the new treaty, even though it offers only a long-haul solution and leaves many details still to be solved. It offered new confidence in European nations’ commitment to each other and willingness to surrender sovereignty to quell a crisis that started in Greece, engulfed the whole eurozone and now threatens the global financial system.
“This is the breakthrough to the stability union,” German Chancellor Angela Merkel said at the end of the summit. “We are using the crisis as an opportunity for a renewal.”
A document released near the end of the high-stakes summit said the leaders of nine of the 10 EU countries that don’t use the euro “indicated the possibility to take part in this process after consulting their parliaments where appropriate.” The leaders want the new treaty written by March.
In drafting a new treaty, the countries hope to help European nations struggling with giant debts over the long term. 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.”
It remains to be seen whether the central bank will take more aggressive action to buy the bonds of heavily indebted countries. Although Draghi said before the summit that there was no existing plan for increased bond purchases, markets hope his central bank will at least keep the existing, limited program going. The borrowing rates for Italy and Spain held steady on Friday, suggesting investors were cautious about the implications of the summit for more ECB intervention.
While the deal could help save the euro, the political consequences of the rift with Britain could be 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, firmly said no.
“What was on offer is not in Britain’s interest so I didn’t agree to it,” said British Prime Minister David Cameron. “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.”
French President Nicolas Sarkozy blamed the British leader for scuppering an EU-wide treaty.
“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.
Hungary, the Czech Republic and Sweden said they would need to consult their parliaments, while the other six countries outside the eurozone — Denmark, Poland, Bulgaria, Romania, Latvia, Lithuania — agreed they wanted to join.
Bit by bit through the long night, the 17 eurozone leaders persuaded others to join the treaty.
“At least 23 of the member states of the European Union will be part of this agreement and possibly it will be 26,” European Commission President Jose Manuel Barroso said.
The EU leaders agreed that the eurozone, together with some other EU countries, would provide up to €200 billion ($268 billion) in extra resources to the IMF, to be used to help European countries in dire straits.
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 ambitious post-World War II efforts to unite a bloodied continent.
Governments participating in the new treaty agreed to have balanced budgets, calculated as an annual “structural” deficit of no greater than 0.5 percent of gross domestic product. An unspecified “automatic correction mechanism” will punish countries that break the rules.
To prevent excessive deficits, countries will have to submit their national budgets to the European Commission, which will have the authority to request that they be revised.
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. But Merkel said there was legal leeway on the issue.
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.
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.