Sum­mit strikes deal to pre­serve euro

Bri­tain adopts wait-and-see stance in move to build new fis­cal union for Europe

Weekend Argus (Saturday Edition) - - BUSINESS -

BRUS­SELS: Europe di­vided in a his­toric rift yes­ter­day over build­ing a fis­cal union to pre­serve the euro, with a large ma­jor­ity of coun­tries, led by Ger­many and France, agree­ing to move ahead with a sep­a­rate treaty, leav­ing Bri­tain iso­lated.

Twenty-three of the 27 lead­ers agreed to pur­sue tighter in­te­gra­tion with stricter bud­get rules for the sin­gle currency area, but Bri­tain said it could not ac­cept pro­posed amend­ments to the EU treaty af­ter fail­ing to se­cure con­ces­sions for it­self.

Af­ter 10 hours of talks, all 17 mem­bers of the euro zone and six coun­tries that as­pire to join re­solved to ne­go­ti­ate a new agree­ment along­side the EU treaty, with a tougher deficit and debt regime to in­su­late the euro zone against the debt cri­sis.

Euro­pean Cen­tral Bank pres­i­dent Mario Draghi called the de­ci­sion a step for­ward for the stricter bud­get rules he has said are nec­es­sary if the 17na­tion euro zone is to emerge stronger from two years of mar­ket tur­moil.

“It’s go­ing to be the ba­sis for a good fis­cal com­pact and more dis­ci­pline in eco­nomic pol­icy in the euro area mem­bers,” Draghi said. “We came to con­clu­sions that will have to be fleshed out more in the com­ing days.”

Ger­man Chan­cel­lor An­gela Merkel said she was very sat­is­fied with the de­ci­sions. The world would see that Europe had learned from its mis­takes and avoided “lousy com­pro­mise”, she said.

Merkel said she had not given up hope that Bri­tain would even­tu­ally agree to change the EU treaty to an­chor stricter bud­get dis­ci­pline.

Ac­tive ECB sup­port will be vi­tal in the com­ing days.

Ir­ish Europe Min­is­ter Lucinda Creighton said Dublin and many other mem­ber states ex­pected the cen­tral bank to take a more pro- ac­tive ap­proach to the debt cri­sis in the weeks ahead. Traders said the ECB bought Ital­ian bonds yes­ter­day to steady mar­kets.

The euro, shares and com­modi­ties fell in Asia be­cause of grow­ing doubts about whether Europe can forge a con­vinc­ing fi­nan­cial fire­wall to ar­rest con­ta­gion in bond mar­kets, but the currency re­gained ground in Europe and Euro­pean stocks were nar­rowly higher.

“Mar­kets need to know where we are go­ing, how we’re get­ting there, and they need to know how long it’s go­ing to take.

“Where we are go­ing, I be­lieve, is to­ward a more uni­fied and se­ri­ous Europe in bud­getary terms,” said Fran­cois Perol, chief ex­ec­u­tive of BPCE, France’s sec­ond-largest bank.

In the run-up to the sum­mit, Draghi’s use of the term “fis­cal com­pact” had spurred hopes that the ECB would be pre­pared to en­gage in mas­sive buy­ing of bonds from dis­tressed euro zone states, an in­ter­pre­ta­tion he dis­cour­aged on Thurs­day.

Merkel and French Pres­i­dent Ni­co­las Sarkozy had wanted to get the whole EU to agree to change the Lis­bon treaty so that stricter bud­get and debt rules for euro zone states could be en­shrined in the bloc’s ba­sic law.

But Bri­tain, which is out­side the euro zone, re­fused to back the move, say­ing it wanted guar­an­tees in a pro­to­col pro­tect­ing its fi­nan­cial ser­vices in­dus­try. Sarkozy de­scribed Bri­tish Prime Min­is­ter David Cameron’s de­mand as un­ac­cept­able.

Cameron hinted Lon­don may try to pre­vent the oth­ers from us­ing the ex­ec­u­tive Euro­pean Com­mis­sion and the Euro­pean Court of Jus­tice, say­ing: “Clearly the in­sti­tu­tions of the Euro­pean Union be­long to the Euro­pean Union, they be­long to the 27.”

As a re­sult, Sarkozy and Merkel said the in­ten­tion was now to forge an in­ter­gov­ern­men­tal treaty among the euro zone coun­tries and any oth­ers that wanted to join. They in­di­cated that could be up to 25 coun­tries in all, with only Bri­tain and per­haps Hun­gary left out­side the tent for now. Swe­den and the Czech Repub­lic said they would con­sult their par­lia­ments.

“This is a sum­mit that will go down in his­tory,” said Sarkozy. “We would have pre­ferred a re­form of the treaties among 27. That wasn’t pos­si­ble given the po­si­tion of our Bri­tish friends. And so it will be through an in­ter­gov­ern­men­tal treaty of 17, but open to oth­ers.”

Her­man van Rom­puy, the pres­i­dent of the Euro­pean Coun­cil and the sum­mit chair­man, fo­cused on the suc­cess in se­cur­ing agree­ment for tighter fis­cal lim­its, in­clud­ing the need for coun­tries to bring bud­gets close to bal­ance.

“It means re­in­forc­ing our rules on ex­ces­sive deficit pro­ce­dures by mak­ing them more au­to­matic. It also means that mem­ber states would have to sub­mit their draft bud­getary plans to the (Euro­pean) Com­mis­sion,” he said.

On treaty change, Van Rom­puy said the new treaty would in­volve the euro zone and at least six other coun­tries, with two more wait­ing for a man­date to par­tic­i­pate.

“An in­ter- gov­ern­men­tal treaty can be ap­proved and rat­i­fied much more rapidly than a full-fledged treaty change, and I think speed is also very im­por­tant to en­hance cred­i­bil­ity,” he said.

But it could still take months of wran­gling, with coun­tries like Fin­land and Slo­vakia op­pos­ing a Fran­coGer­man drive to take de­ci­sions on fu­ture bailouts by a su­per­ma­jor­ity to avoid be­ing taken hostage by a sin­gle small coun­try.

In a meet­ing billed as a last chance to save the euro, with fi­nan­cial mar­kets un­con­vinced by pol­i­cy­mak­ers’ ef­forts to tackle the re­gion’s prob­lems so far, the lead­ers also took sev­eral crit­i­cal de­ci­sions on the per­ma­nent bailout fund, the Euro­pean Sta­bil­ity Mech­a­nism (ESM), which will come into force in July 2012.

The ESM’S ca­pac­ity will be capped at € 500 bil­lion, less than had been sug­gested was pos­si­ble be­fore the sum­mit, and the fa­cil­ity will not get a bank­ing li­cence, as Van Rom­puy orig­i­nally had pro­posed, due to Ger­man op­po­si­tion.

It also was agreed that EU coun­tries would pro­vide up to € 200bn in bi­lat­eral loans to the In­ter­na­tional Mone­tary Fund ( IMF) to help it tackle the cri­sis.

“We can be very pleased at the re­sult,” IMF chief Chris­tine La­garde said as she left the sum­mit.

Cameron’s de­ci­sion to stay out of the treaty-change camp could spell prob­lems for Bri­tain, although it was ex­pected to find favour with the in­creas­ingly vo­cal euroscep­tic wing of his Con­ser­va­tive party ini­tially. – Reuters


MONEY MAT­TERS: Ger­many's Chan­cel­lor An­gela Merkel, left, leaves the Euro­pean Coun­cil head­quar­ters yes­ter­day af­ter a night of ne­go­ti­a­tions. Bri­tain’s Prime Min­is­ter David Cameron, cen­tre, and France's Pres­i­dent Ni­co­las Sarkozy speak dur­ing a news con­fer­ence yes­ter­day.

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