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Treaty to Save Euro Takes Shape, but Britain Sits Out

European leaders, meeting until the early hours of Friday, agreed to sign an intergovernmental treaty that would require them to enforce stricter fiscal and financial discipline in their future budgets.

Euro bills in hand
AP
Euro bills in hand

But efforts to get unanimity among the 27 members of the European Union, as desired by Germany, failed as Britain refused to go along.

Importantly, all 17 members of the European Union that use the euro agreed to the new treaty, along with six other countries who wish to join the currency union one day.

Two countries, the Czech Republic and Sweden, said they would want to talk to their parties and parliaments at home before deciding, said President Nicolas Sarkozy of France, but it seemed unlikely that Sweden would join. Hungary said it wanted to examine the details, leaving Britain isolated.

Though not a perfect solution, because it could be seen as institutionalizing a two-speed Europe, the intergovernmental pact could be ratified much more quickly by parliaments than a full treaty amendment.

Crucially, the deal was welcomed immediately by the new head of the European Central Bank , Mario Draghi.

“It is a very good outcome for euro area members and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro area countries,” Mr. Draghi said early Friday morning.

The support of Mr. Draghi and the bank to continue to buy the bonds of troubled large countries like Italy and Spain is crucial to buy time for their economic adjustment and restructuring, to reduce their debt and avoid a collapse of the euro.

The outcome was a significant defeat for David Cameron, the British prime minister, who had sought assurances to protect Britain’s financial services sector in exchange for doing a deal.

Mr. Sarkozy said that “David Cameron requested something we all considered unacceptable, a protocol in the treaty allowing the U.K. to be exempted for a certain number of financial regulations.”

Mr. Cameron said, “What was on offer wasn’t in British interests, so I didn’t agree to it.”

He conceded that there were risks with others going ahead to form a separate treaty, but added, “We will insist that the E.U. institutions, the court and the Commission work for all 27 nations of the E.U.”

The prime minister seemed to be betting that his unhappy coalition partners, the Liberal Democrats, would not bolt over the issue, and that calculation seemed to be right.

On Friday, the party’s leader, Nick Clegg, said that as much as he regretted the turn of events, Mr. Cameron’s demands had been “modest and reasonable.”

The European Council president, Herman Van Rompuy, said that in addition, the leaders agreed to provide an additional 200 billion euros to the International Monetary Fund to help increase a “firewall” of money in European bailout funds to help cover Italy and Spain.

He also said a permanent 500 billion euro European Stability Mechanism would be put into effect a year early, by July 2012, and for a year, would run alongside the existing and temporary 440 billion euro European Financial Stability Facility , thus also increasing funds for the firewall.

The leaders also agreed that private sector lenders to euro zone nations would not automatically face losses, as had been the plan in the event of another future bailout.

When Greece’s debt was finally restructured, the private sector suffered, making investors more anxious about other vulnerable economies.

Mr. Sarkozy said that the institutions of the European Union would be able to police the new pact, though Britain may dispute that.

Chancellor Angela Merkel of Germany, who pressed hard for a treaty that would codify and enforce debt limits and central oversight of national budgets, said the decisions made here will result in increased credibility for the euro zone.

“I have always said the 17 states of the euro zone need to win back credibility,” she said. “And I think that this can happen, will happen, with today’s decisions.”

European financial markets strengthened mildly on word of the agreement. The Euro Stoxx 50 index, a barometer of euro zone blue chips, gained 1.5 percent, while broader barometers rose slightly, and stocks rose in early United States trading as well.

The euro’s value strengthened to $1.3369, up from $1.3338 on Thursday.

In the bond market, the borrowing costs of the euro region’s two most closely watched debt-ridden economies, Italy and Spain, were little changed.

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