Merkel, Sarkozy agree on EU treaty change to handle crises

France and Germany called on European Union member states yesterday (18 October) to draw up proposals by next March for a permanent system to handle crises in the euro zone by suspending voting rights, admitting that it would mean changing the EU treaty.

A joint statement issued by French President Nicolas Sarkozy and German Chancellor Angela Merkel at a summit in France said they also agreed that the private sector should be involved in the system, intended to resolve problems like the sovereign debt crisis that hit Greece this year.

They called for proposals to be submitted before an EU summit next March, signalling a desire to speed up the process. The executive European Commission has called for countries to come up with ideas in the latter part of 2011.

"We have to move forward because in 2013 the rescue funds for the euro will end, so we need a more lasting rescue mechanism," Merkel told a news conference in the northern French port of Deauville.

The two biggest countries in the euro zone agreed on the need for changes to EU law to make it possible to suspend the voting rights of an EU country which seriously violates the principles of the Economic and Monetary Union (EMU).

"Financial sanctions are limited. If there is a situation like Greece, is there any sense in imposing a fine? However, there is sense if you ban a state from voting on a raft of [key] EU decisions," a French source close to the talks said.

The euro zone has 16 members, to be joined by Estonia next year.

The necessary amendments to the EU treaty should be adopted and ratified by member states before 2013, the French/German statement said.

"We are conscious of the reluctance to amend the treaties as a whole," the French source said. "What we are proposing is a surgical revision. We don't want it to open a debate on the constitution or the Union."

Changes to the EU treaty have to be ratified by all 27 EU member states, some of which have resisted such changes.

EU finance ministers, carrying out a general overhaul of the bloc's fiscal rulebook in Luxembourg, were discussing how far to commit themselves to creating a permanent mechanism for crisis resolution in the euro zone.

The changes to the budget rules, outlined in the Stability and Growth Pact, are the biggest overhaul of the fiscal rules underpinning the euro since its creation in 1999 and are meant to prevent another Greek-style sovereign debt crisis.

The euro zone has so far agreed on ad hoc solutions for emergency financing – an 80 billion euro ($112 billion) bilateral loan package for Greece and a 500 billion euro European Financial Stability Mechanism for all euro zone states.

Both mechanisms expire in 2013.

According to a draft proposal prepared for EU finance ministers last week, a permanent crisis resolution mechanism would have to involve strong conditions for any aid to be given, with terms and conditions similar to those imposed by the International Monetary Fund.

It would also involve the private sector and the IMF, address the issue of moral hazard, strengthen incentives to pursue sound fiscal policy and respect the independence of the European Central Bank, the draft said.

"The mechanism is a problem due to the no-bailout clause," the French source said. "We [France and Germany] want it to be permanent on an uncontested judicial base […] so the treaty must be changed," he said.

Tripartite summit with Russia

Russian President Dmitry Medvedev joins Sarkozy and Merkel in Deauville today at a security summit, on the eve of an important Nato summit next month and France's chairmanship of the G8 and G20 next year.

Medvedev arrived in Deauville last night and attended a dinner with Sarkozy and Merkel in a local restaurant. It is understood that Medvedev will be invited to attend meetings on the fringes of a 19-20 November Nato summit in Lisbon, where leaders of the Atlantic alliance are due to approve a new strategic doctrine.

(EURACTIV with Reuters.)

Positions

At a briefing on NATO-Russia relations on Friday (14 October), Hans-Friedrich von Ploetz, Germany's ambassador to Russia from 2002 to 2005, stressed the ongoing importance of NATO for European security and called on Russia to accept the alliance's offer of collaboration.

NATO sees Russia not as a threat but as a "desirable partner and potential ally" and is making a serious invitation for cooperation in areas such as missile defence, said Von Ploetz, a member of the alliance's expert group on its new Strategic Concept. "NATO efforts to build missile defence should include Russia, if Russia wants," he stated.

Von Ploetz, who dismissed Russian concerns about NATO wanting to become a global policeman as "nonsense", also stressed the key role of EU enlargement in stability on the continent. Membership means safety – which "should be good news for Russia," he said.

Russia's envoy to NATO Dmitry Rogozin questioned the nature of the alliance's offer of cooperation and claimed that the idea behind a NATO missile defence system is not security but to keep the organisation together.

NATO may have proposed Russian involvement but has offered "no tangible structure of projects" and Russia is therefore sceptical about collaborating, he stated. Russian President Dmitry Medvedev has not yet decided whether to accept the invitation to the NATO summit on 19-20 November, he added.

Rogozin believes there is only one reason for a NATO-wide missile defence system – to prevent the US from bypassing NATO and pursuing bilateral agreements. "Involving all NATO member states is not for security but to preserve unity," he claimed.

As for restoring the Treaty on Conventional Armed Forces in Europe (CFE), suspended by the Russians in 2007 after the US planned to install missile systems in the Czech Republic and Poland, Ragozin said that Russia is in favour but stressed there will be "no discussion" whatsoever about withdrawing its military presence in Abkhazia and South Ossetia.

Background

As the Greek crisis raged, the last European Council conclusions in March underlined that "overall economic policy coordination will be strengthened".

Leaders also stressed that "coordination at the level of the euro zone will be strengthened in order to address the challenges the euro area is facing". "The Commission will present by June 2010 proposals in that respect, making use of the new instruments for economic coordination offered by Article 136 of the Treaty," reads the final text.

Article 136 of the Lisbon Treaty states that the EU Council of Ministers – representing the 27 member states – can adopt measures concerning eurozone countries in order "to strengthen the coordination and surveillance of their budgetary discipline" and "to set out economic policy guidelines for them".

The permanent president of the EU Council, Herman Van Rompuy, set up an ad-hoc task force to reach this target and strengthen the EU Stability Pact.

Last June, a Franco-German proposal to suspend countries' voting rights as a last resort has reportedly not been taken seriously by others around the table.

Countries with high debts, like Belgium and Italy in particular, are seeking softer commitments. 

In addition, Eastern European countries, like Poland, which is one of the greatest beneficiaries of EU regional funds, are worried that new sanctions would disproportionately affect their economy.

Timeline

  • 28-29 Oct.: EU summit, Bussels.
  • 19-20 Nov.: NATO summit, Lisbon.
  • Mid-November: France assumes G20 presidency.

Further Reading