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EU Summit To Ponder New Rules To Stop Future Greek-Style Meltdowns


"Without a Franco-German agreement, not much is possible," German Chancellor Angela Merkel has said.
A two-day EU summit under way in Brussels is being dominated by a row over whether the EU's Lisbon treaty should be amended.

The changes, sought by France and Germany, are meant to protect Europe's single currency against future financial crises.

But France and Germany are accused of hijacking EU discussions on new anticrisis procedures by agreeing between themselves and excluding consultations with smaller members of the union.

Reports say the draft will be presented to the summit without clauses which some smaller member states consider necessary.

A grouping consisting of Sweden, Finland, the Netherlands, and Luxembourg, had sought a mechanism which would impose automatic financial penalties on member states which allowed their national budgets to fall into deficit beyond certain strict limits. In this they were backed by the European Commission, and initially by German Chancellor Angela Merkel.

But at bilateral talks with French President Nicolas Sarkozy in Deauville Merkel changed her tack and threw her support behind Sarkozy's view that the member states acting in council should decide if and when a state should be penalized for fiscal irresponsibility.

This has the effect of keeping any such decision in the political arena, and out of the hands of the central bureaucrats of the European Commission. But it is also considered to be a watering-down of the deterrent effect that would stem from automatic punishment.

Luxembourg Foreign Minister Jean Asselborn has described the Franco-German go-it-alone initiative as "poisoning" the whole issue.

And European Central Bank President Jean-Claude Trichet has described the terms contained in the draft as too weak to safeguard the eurozone against further crises of confidence on international markets.

But Merkel is sticking to her guns. She told the German parliament on October 27 that her agreement with Sarkozy made sense.

"It is true that a Franco-German agreement is not everything in Europe. But without a Franco-German agreement, not much is possible," Merkel said.

Trillion-Dollar Stability Fund

In a preamble to the draft, Merkel and Sarkozy express full confidence in the plan, which is based on a report by EU President Herman van Rompuy. They say its implementation will allow an increase in fiscal discipline, a broadening of economic surveillance, and a deepening of coordination, and will provide a robust framework for crisis management.

One of the proposals in the draft calls for the possibility of withdrawing the EU voting rights from countries which seriously violate the principles of the monetary union. Reuters quoted a French source as saying this is more sensible than placing automatic fines on countries which are obviously in financial difficulties anyway.

One major complication of the Franco-German plan is that it would require a change to the Lisbon Treaty, the basic EU charter which took eight years of effort to complete and which only came into force in 2009. EU Justice Commissioner Viviane Reding has condemned the idea of treaty changes as "illusory."

Amendments would be required because of the envisaged suspension of voting rights, and because Merkel and Sarkozy envisage creation of a permanent rescue mechanism to deal with future financial crises in the 16-nation eurozone.

Despite the criticism, Merkel insists this is the right course. "There are no two ways about it, in clear terms -- this will only succeed with an alteration of the European treaties," Merkel said.

The trillion-dollar stability fund created earlier this year, to prop up the euro and reassure global markets that Greece, Spain, and Portugal would not be allowed to fail, expires in 2013. Paris and Berlin say they want the new crisis procedures in place by then.

But changes to the Lisbon Treaty have to be ratified by all 27 member states, and experience proves how difficult and time-consuming that can be.
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