BRUSSELS, Dec 9 (bdnews24.com/Reuters) - Europe divided on Friday in a historic rift over building a closer fiscal union to preserve the euro, with an overwhelming majority of countries led by Germany and France agreeing to forge ahead with a separate treaty, leaving the EU's third biggest economy Britain isolated.
The outcome of a two-day European Union summit left financial markets uncertain whether and when more decisive action would be taken to stem a debt crisis that began in Greece, spread to Portugal, Ireland, Italy and Spain and now threatens France and even economic powerhouse Germany.
A new treaty could take three months to negotiate and may require referendums in some countries. Two ECB sources told Reuters the European Central Bank would keep purchases of euro zone government bonds capped for now and not take extra action. Debt markets were wary. Interbank lending rates eased but Italian 10-year bond yields remained around 6.5 percent.
Twenty-six of the 27 EU leaders agreed to pursue tighter integration with stricter budget discipline in the single currency area, but Britain said it could not accept proposed EU treaty amendments after failing to secure concessions.
After 10 hours of talks that ran into the early hours of Friday, all 17 members of the euro zone and nine countries that aspire to join resolved to negotiate a new agreement alongside the EU treaty with a tougher deficit and debt regime to avoid a repetition of the debt crisis in future.
The nine non-euro states said they would consult their parliaments, where appropriate, on taking part in the process. After a long night of wrangling, Britain's few allies melted away in the Brussels dawn.
"Not Europe, Brits divided. And they are outside of decision making. Europe is united," Lithuanian President Dalia Grybauskaite said in blunt English.
One senior EU diplomat called British Prime Minister David Cameron's negotiating tactics "clumsy". Among other issues, he had sought a right to veto a proposed financial transaction tax, which may be voted through by a majority over the objections of the City of London financial centre.
ECB President Mario Draghi called the decision a step forward for the stricter budget rules he has said are necessary for the euro zone to emerge stronger from the 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."
Two ECB sources said the bank's governing council decided on Thursday to keep bond buying limited to around 20 billion euros a week and there was no need to review the decision in the light of the summit outcome.
"You will see some further purchases but not the huge bazooka that some people in the markets and the media are awaiting," one central banker told Reuters on condition of anonymity.
But French President Nicolas Sarkozy told reporters the ECB's move to provide unlimited three-year funds to cash-starved European banks would be more effective, by enabling them to continue buying government bonds.
"This means that each state can turn to its banks, which will have liquidity at their disposal," he said.
"SEETHES, SULKS, GLOATS"
German Chancellor Angela Merkel said she was satisfied with the decisions. The world would see that Europe had learned from its mistakes and avoided "lousy compromise", she said.
Europe's most powerful leader said she had not given up hope that Britain would eventually agree to change the EU treaty to anchor stricter budget discipline, with automatic sanctions for deficit offenders.
Sarkozy sounded elated at having united a big group around the euro zone as the EU's core, long a French objective.
"This is a summit that will go down in history," he said. "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."
One EU diplomat summed up the outcome as: "Britain seethes, Germany sulks, and France gloats."
Active ECB support will be vital in the coming days with markets doubting the strength of Europe's financial firewalls to protect vulnerable economies such as Italy and Spain, which have to roll over hundreds of billions of euros in debt next year.
Irish Europe Minister Lucinda Creighton said Dublin and many other member states expect 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 on Friday to steady markets.
Creighton also said there was a 50/50 chance that Ireland would have to hold a referendum on ratifying a fiscal union treaty. Irish voters have rejected EU treaties twice in the last decade in plebiscites, holding up their entry into force, only to reverse their vote later under strong European pressure.
Voters in any referendum this time will cast their ballots in the knowledge that Ireland is receiving an EU bailout, and that it will not be able to prevent other countries going ahead without it.
The euro rallied in Europe but analysts said the summit had done little to convince markets that a solution to the crisis was at hand. Asked if the euro was safe now, Polish Prime Minister Donald Tusk said: "I'm not sure."
BRITAIN OUTSIDE?
Merkel and French President Nicolas Sarkozy had wanted to get the whole EU to agree to change the Lisbon treaty so that automatic sanctions to back budget and debt rules for eurozone states could be enshrined in the bloc's basic law.
But Britain, which is outside the euro zone, refused to back the move, demanding guarantees in a protocol protecting its financial services industry, roughly one-tenth of the country's economy. Sarkozy described Cameron's demand as unacceptable.
Cameron hinted London may now 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."
The rift may increase pressure from Eurosceptics within Cameron's Conservative party and outside it for Britain to hold a referendum on leaving the EU, which it joined in 1973. The prime minister strongly opposes such a course, which he has said would be disastrous for British interests. Britain conducts more than half of its trade within the EU and would suffer economically if it lost its priviliged access to the single market.
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," Van Rompuy said.
"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 Franco-German drive to take decisions on future bailouts by an 85 percent supermajority to avoid being taken hostage by a single small country.
LAST-CHANCE SALOON?
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 decisions on the permanent bailout fund, the European Stability Mechanism, which will come into force a year early in July 2012.
The ESM's capacity will be capped at 500 billion euros, 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 200 billion euros in bilateral loans to the International Monetary Fund IMF.L to help it tackle the crisis, with 150 billion euros of the total coming from the euro zone countries.
"We can be very pleased at the result," IMF Managing Director Christine Lagarde said as she left the summit.
Cameron's decision to stay out of the treaty-change camp could spell problems for Britain.
The danger is that if a large majority of EU countries do push ahead with deeper integration, it could involve changes to the single market and financial regulation, both of which could have a profound impact on the British economy.
"Cameron was clumsy in his manoeuvring," a senior EU diplomat said. It may be possible that Britain will shift its position in the days ahead if it discovers that isolation really is not a viable course of action, diplomats said.
At the same time, if Britain does stay out, not only could it mark an irrevocable split with the European Union, which it joined nearly 40 years ago, but it will leave the rest of the EU and euro zone to institutionalise a 'two-speed' Europe.
Earlier, the plight of Europe's banks was thrown into sharp relief. The European Banking Authority told them to increase their capital by a total of 114.7 billion euros, significantly more than predicted two months ago.
A Reuters poll of economists found that while 33 out of 57 believe the euro zone will probably survive in its current form, 38 of those questioned expected this week's summit would fail to deliver a decisive solution to the debt crisis. |
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