Eurozone agrees fiscal pact after EU summit clash

Eurozone agrees fiscal pact after EU summit clash
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First Published: Fri, Dec 09 2011. 04 55 PM IST

Euro sign outside the ECB head office. Photo: Bloomberg
Euro sign outside the ECB head office. Photo: Bloomberg
Updated: Fri, Dec 09 2011. 04 55 PM IST
Brussels: European leaders vowed Friday to enforce budget discipline to tackle the debt crisis but failed to agree to German-French demands for an European Union (EU) treaty change due to stiff resistance from Britain.
Europe’s big three, France, Germany and non-euro Britain, clashed at a summit over how to resolve the two-year crisis threatening to split the euro zone and undermine the EU.
Euro sign outside the ECB head office. Photo: Bloomberg
“The British were already not in the euro and in that respect, we are used to this situation,” German Chancellor Angela Merkel said on arrival for a second round of talks after a 10-hour session that ended at 10:30 am.
But Merkel said she was “very pleased” that the 17-nation euro zone and a group of six other EU countries - 23 of the 27 EU members - had agreed a so-called “new fiscal compact” that plans to impose near automatic sanctions on debt and deficit delinquents.
“Anyone in the world will be able to see that we have learned from the mistakes of the past, that our credibility has been written large,” she said.
The 23 will now seek to agree on a new pact, which will involve only the euro zone nations, but without non-euro nations Britain and Hungary, while Sweden and the Czech Republic were undecided.
Some leaders hope the tighter rules will spur the European Central Bank (ECB) to step up its role in the crisis after ECB president Mario Draghi had called for a “new fiscal compact” last week.
Draghi dubbed the summit decisions a “very good outcome” for the euro zone, one day after he sent markets into a tailspin by saying that the ECB’s purchase of troubled sovereign bonds was “limited” and “temporary”.
Asian markets dropped as investors nervously awaited the final outcome of the marathon summit, which was resuming Friday after a first 10-hour round. Tokyo closed down 1.48% and Hong Kong slumped 2.73%.
Europe’s main stock markets also fell at the start of trading.
Merkel and President Nicolas Sarkozy had lobbied for deeper treaty change agreed by all 27 members and the French leader said conditions demanded by British Prime Minister David Cameron for London to back the wider treaty change were “unacceptable”.
Cameron said he took a “tough but good” decision to block the EU-wide changes sought by France and Germany.
“Where we can’t be given safeguards, it is better to be on the outside,” said Cameron, who failed with a bid to secure as way of concession a halt of ongoing EU efforts to curb the City of London’s huge financial services sector.
A square mile in central London is home to 75% of Europe’s entire financial services industry, but the British government is resisting French and German moves to impose a financial transactions tax, as well as new regulations controlling trading.
Sarkozy said a deal among all member nations “wasn’t possible taking into account the position of our British friends.”
He added, “In order to accept treaty revision among the 27 EU states, David Cameron asked us - something we all judged unacceptable - for a protocol to be inserted into the treaty granting the United Kingdom a certain number of exonerations on financial services regulations.
“We could not accept this, since we consider, quite on the contrary, that a part of the world’s woes stem from the deregulation of the financial sector,” Sarkozy added.
While the leaders split over treaty changes, they pledged to pump €200 billion ($267 billion) into IMF coffers to help the euro zone, which is struggling to boost its own rescue fund to €1 trillion.
Sarkozy also said the ECB had been handed control over management of the bailout fund, the European Financial Stability Facility (EFSF).
The EFSF’s successor, the European Stability Mechanism (ESM), will come into force earlier than first mooted in July 2012, with a lending capacity of €500 billion.
EU President Herman Van Rompuy also said that a German-led drive to impose private-sector losses on Greek bondholders had been a one-off deal that would not be repeated.
This policy, which he admitted had had “a very negative effect on the debt markets” was “officially over”, he declared.
But Germany won other battles, notably when EU leaders they dropped the idea of pooling debt by issuing joint euro zone bonds.
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First Published: Fri, Dec 09 2011. 04 55 PM IST
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