Cameron ‘in the corner’ as EU strikes euro treaty deal

David Cameron Dec 2011_Picnik.jpg

EU leaders gathered in Brussels agreed on a new treaty to tighten fiscal discipline in the eurozone and address the bloc's debt problems. The treaty, an intergovernmental agreement outside the EU legal framework, will be drafted by March 2012 and opened to ratification by nations outside the 17-member eurozone.

European Union leaders agreed a new "fiscal compact" on tighter budget and debt rules for the eurozone in summit talks that lasted until around 5 am Brussels time.

An agreement to tighten fiscal discipline in the wider EU-27 proved impossible after UK Prime Minister David Cameron made "unacceptable demands" to exempt the City of London from financial market regulations, according to French President Nicolas Sarkozy.

"David Cameron refuses to continue the discussion, but is still in the room," a diplomat told EURACTIV just before negotiations were interrupted.

"Cameron is in the corner," he said.

'17+6', more to join

EU leaders have therefore resorted to the less enviable option of a treaty among the 17 eurozone countries, open to others. At least six additional countries have agreed to sign up – Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania.

"Having seen it was not possible to get unanimity, it was the proper decision to go ahead at least with those ready to commit immediately," Sarkozy said at an early-morning news briefing.

"That includes all 17 in the eurozone, plus some who are not in the euro area but want to take part in this fiscal compact," Sarkozy said in reference to Poland and possibly others.

Given the reticence of some leaders, an intergovernmental agreement outside the EU legal framework was the only solution, Sarkozy explained.

"But that does not mean that the EU institutions are not going to have a role," Sarkozy added.

Britain isolated, Hungary undecided

Further talks on the legal details of the new treaty will now resume in the weeks to come, with all the "17+6" signatory countries at the table, EURACTIV was told.

The new treaty will be on the table of the next regular EU summit in March 2012 and then open to ratification.

The Czech Republic and Sweden first need to consult their national Parliaments before they can join in, said European Council President Herman Van Rompuy. He confirmed that Latvia, Lithuania, Romania and Bulgaria are all in.

But the UK will definitely not be there and Hungary was expected to be absent as well, sources said, although Budapest might reconsider its stance in order not to be isolated, EURACTIV understands.

This would leave Britain as the sole EU member state clearly outside of the agreement, with its future as part of the EU now put in question.

'Fiscal compact'

Along the lines of a new "fiscal compact", sanctions on budget rule-breakers would apply automatically unless blocked by a qualified majority – or three-quarters of eurozone member states. This will be done via an amendment to Article 126 of the EU treaty.

Countries will commit to enshrine a "golden rule" to run budgets which are balanced or in surplus into their national constitutions "or equivalent level". The signatories recognise the European Court of Justice "to verify the transposition of this rule at national level," the text reads.

The new procedure will also oblige euro area countries to submit their draft budgetary plans to the European Commission before they are adopted by their national parliaments, although the Commission will not have the power to annul them.

Financial backstop

Further talks will also address new financial backstops to protect eurozone countries against speculative attacks on the sovereign bond market.

Christine Lagarde, the International Monetary Fund's managing director, confirmed that a commitment to boost the IMF by €200 billion had been struck, via bilateral loans. However, the details still need to be confirmed by the EU and the IMF "within ten days".

Meanwhile, the entry into force of the eurozone's permanent bailout fund – the European Stability Mechanism – will be pushed earlier, in July 2012, instead of 2013.

But only small progress was made on ways boost the firepower of the EU's current bailout  fund, the European Financial Stability Facility (EFSF). The fund's ceiling is fixed at €500 billion as of March 2012, the statement said.

British Prime Minister David Cameron explained the reasons behind his refusal to sign up to the treaty, saying it wasn't in Britain's national interests.

"I said before coming to Brussels that if I couldn't get adequate safeguards for Britain in a new European treaty then I wouldn't agree to it. What is on offer isn't in Britain's interests, so I didn't agree to it."

"We want the euro zone countries to come together and to solve their problems. But we should only allow that to happen inside the European Union treaties if there are proper protections for the single market and for other key British interests. Without those safeguards it is better not to have a treaty within a treaty but to have those countries make their arrangements separately."

“We have shown today that we have learned from mistakes made in the past,” German Chancellor Angela Merkel argued, saying the EU has put in motion "a step-by-step process that will re-establish confidence in our common currency."

“We have received much support also from the countries which have not joined the euro, except from the UK which has distanced itself," Merkel further sated, adding: “We got want we wanted for the euro."

But she stressed the UK is aware that it relies as much on a stable euro than other EU countries. “We are all in the same boat,” she said, arguing EU leaders had achieved a breakthrough deal which will guarantee stability for the euro and the Union.

 

German Chancellor Angela Merkel, backed by France's Nicolas Sarkozy, have insisted on modifying the EU treaties to avoid repeats of the debt crises plaguing members of the eurozone.

Article 136 of the Treaty on the Functioning of the European Union (TFEU) says eurozone countries may "adopt measures specific to those member states whose currency is the euro", for example:

  • "to strengthen the coordination and surveillance of their budgetary discipline";
  • "to set out economic policy guidelines for them, while ensuring that they are compatible with those adopted for the whole of the Union and are kept under surveillance."

However, more recently Germany and France have been exploring radical methods of securing deeper and more rapid fiscal integration among eurozone countries, aware that getting broad support for the necessary treaty changes may not be possible.

  • 1 January 2012: Denmark takes over the rotating EU presidency, succeeding Poland.
  • 1-2 March 2012: Next regular EU summit. '17+6' group plus others expected to sign p to new intergovernmental treaty putting in place the so-called "fiscal compact".
  • July 2012: Entry into force of the eurozone's permanent bailout fund, the European Stability Mechanism (ESM).
  • End 2012: Target date for completing ratification process of new treaty.

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