Merkozy Push for New EU Treaty, Deficit Sanctions

Bulgaria in EU | December 5, 2011, Monday // 17:01|  views

French President Nicolas Sarkozy (R) and German Chancellor Angela Merkel (L) shake hands after a press conference after meeting to discuss the eurozone crisis at the Elysee Palace in Paris, 5 Dec 2011. EPA/BGNES

The leaders of Germany and France – Angela Merkel and Nicolas Sarkozy – have issued a joint call for amendments to EU's governing treaties – at least, for the 17 countries of the euro zone.

Merkozy, as the German Chancellor and French President are known together, met over lunch at the ?lys?e Palace to prepare joint proposals to offer the 27 members of the European Union in Brussels on Thursday night.

They agreed to propose automatic penalties for countries that exceed European deficit limits as well as the creation of a monetary fund for Europe, and backed monthly meetings of European leaders, the NYT reported.

"We want to make sure that the imbalances that led to the situation in the euro zone today cannot happen again," the French leader said at a news conference after the lunch.

"Therefore we want a new treaty, to make clear to the peoples of Europe, members of Europe and members of the euro zone, that things cannot continue as they are," he said.

Sarkozy and Merkel said they will detail their proposals in letter to European Council Herman Van Rompuy on Wednesday, a text that will be up for discussion at a meeting of EU leaders scheduled to take place in Brussels on Thursday and Friday.

Sarkozy said he expects a decision on which route to take will be made at the summit while the contours of any treaty change must be agreed on by March.

"We're going full steam ahead to re-establish confidence in the euro and the euro zone," said Sarkozy, as cited by WSJ.

"We need structural changes," said Merkel in turn. "Structural changes that go beyond agreements, and that also means that we need treaty changes in the sense of binding debt brakes that are standardized in Europe and whose form can also be verified by the European Court (of justice) to make sure that every country will be obliged to keep those deficit criteria and keeps the stability and growth pact as a whole. It's not possible to do this in the framework of the current treaties."

In an effort to boost confidence in the troubled monetary union, the two leaders underscored that the participation of private-sector creditors—a key part of the bailout agreement under discussion for Greece—would be limited to that one country.

"The message to investors from across the world is that in Europe we pay back our debt," said Sarkozy. The concession marks a shift from earlier plans to enshrine private-sector participation in any future bailout agreements.

Both leaders said they would prefer the treaty changes to be agreed upon by all 27 EU countries, but that they may consider a smaller number of countries to go ahead with the changes.

The overall deal that much be reach will not be one transformative leap. The various goals are to show resolve to protect Italy and Spain, revise the economic governance of the euro zone and prevent further debt crises, according to officials involved in the talks over the deal.

The Thursday evening meeting is considered a last chance this year to set the euro right, even as some investors and analysts are beginning to predict its collapse, the NYT points out, noting that the emerging solution is being negotiated under great pressure from the markets, the banks, the voters and the Obama administration, which wants an end to the uncertainty about the euro that is dragging down the global economy.

"The survival of the euro zone is in play," one senior European official is quoted as saying, "So far it's been too little, too late."

In the process, European leaders will begin to change the fundamental structure of the union, creating a form of centralized oversight of national budgets, with sanctions for the profligate, to reassure investors that this kind of sovereign-debt crisis is finally being managed and should not happen again.

The new euro package, as European and American officials describe it, is being negotiated along four main lines.

It combines new promises of fiscal discipline that will be embedded in amendments to European treaties; a leveraging of the current bailout fund, the European Financial Stability Facility, to perhaps two or even three times its current balance; a tranche of money from the International Monetary Fund to augment the bailout fund; and quiet political cover for the European Central Bank to keep buying Italian and Spanish bonds aggressively in the interim, to ensure that those two countries — the third- and fourth-largest economies in the euro zone — are not driven into default by ruinous interest rates on their debt.

One dividing line is that the Germans, along with the Dutch and the Finns, remain adamantly opposed to what some consider the simplest solution: allowing the European Central Bank to become the euro zone's lender of last resort and to buy sovereign bonds on the primary market, in unlimited amounts. Merkel is also dead-set for now against collective debt instruments, like "eurobonds," that would put taxpayers, particularly German ones, on the hook for the debt of others, which her government regards as illegal.

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Tags: Merkozy, Nicolas Sarkozy, Angela Merkel, German Chancellor, French President, euro zone, Eurozone, EU, European Union, Lisbon Treaty, Herman van Rompuy, budget deficit, debt crisis, debt crises


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