Brussels - Europe divided on Friday in a historic rift 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 eurozone 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
eurozone against the debt crisis.
“Not Europe, Brits divided and they are outside of decision-making. Europe is united,” Lithuanian President Dalia Grybauskaite said on
arriving for the second day of a crucial crisis summit, the eighth this year.
European Central Bank (ECB) president Mario Draghi called the
decision a step forward for the stricter budget rules he has said are necessary
if the 17-nation eurozone is to emerge stronger from two years of market
“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 as he
left the summit. “We came to conclusions that will have to be fleshed out more
in the coming days.”
Active ECB support will be vital in the coming days as
markets were initially spooked by the split in Europe, and by the prospect of
potentially lengthy and uncertain negotiations on a new treaty.
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.
“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 towards a more unified and serious Europe in budgetary terms,” said
Francois Perol, chief executive of BPCE, France’s second-largest bank.
Asked if the euro was safe now, Polish Prime Minister Donald
Tusk said on his way into the summit: “I’m not sure.”
In the runup 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 eurozone states, an interpretation he
discouraged on Thursday.
German Chancellor Angela 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 eurozone states could be enshrined in
the bloc’s basic law.
But Britain, which is outside the eurozone, 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 eurozone 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 chairperson, focused on the success in securing agreement for tighter
fiscal limits, including the need for countries to bring budgets close to
“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,”
On treaty change, Van Rompuy said the new treaty would
involve the eurozone 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 Franco-German drive to take decisions on
future bailouts by a supermajority to avoid being taken hostage by a single
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 €500bn, 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
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, with €150bn of the total coming from the eurozone 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, although it was expected to find favour with
the increasingly vocal eurosceptic wing of his Conservative party initially.
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 eurozone 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 €114.7bn, significantly more than predicted two months ago.
A Reuters poll of economists found that while 33 out of 57
believe the eurozone 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.