EU Leaders Agree New Debt-Crisis Mechanism

EU leaders have agreed to set up a permanent debt-crisis mechanism as of 2013, which will entail amending the Lisbon Treaty. Photo by EPA/BGNES

The state leaders of the EU members have approved Germany's major proposal for amendments to the Lisbon Treaty to provide for a permanent debt-crisis mechanism.

Despite initial misgivings, the meeting of the European Council in Brussels, the heads of the 27 member states endorsed the major German proposal backed by France, known as the Deauville Deal, providing for the permanent mechanism to be in place by 2013 when the safety net of several hundred billion euros for debt-hit euro zone members is set to expired.

At the same time, however, the majority of the states opposed to another call of the Merkel-Sarkozy plan that demanded severe sanctions such as stripping off voting rights in the EU institutions for those member states that violated the rules of the Stability and Growth Pact such as keeping the public debt under 60% of the GDP.

The potential violators of the Pact will still face financial sanctions such as interest bearing deposits and fines.

"We won't allow only the taxpayers to bear all the costs of a future crisis," German Chancellor Angela Merkel told a press conference in Brussels today after a summit of EU leaders, as cited by Bloomberg.

"I think it is important to create a clear culture of stability in Europe. That is the ultimate for good cohesion in the EU. Europe makes us strong but this Europe needs rules. It must be successful and to that end we made an important start yesterday," Merkel declared, cited by BGNES.

EU leaders said the structure of the permanent debt-crisis system remains open, setting a December deadline for the European Commission to sketch out how it might work, to study how to treat private bondholders and whether to involve the International Monetary Fund. EU President Herman Van Rompuy will devise a way to embed the new system in the bloc's governing treaties.

As a result of opposition by certain member states, most notably the UK, the European Council decided to cap EU's 2011 budget at an expansion of no more than 2.9%.

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