Treaty change key to euro survival

THE euro faces a decisive week as European Union leaders, urged on anxiously by the United States, seek agreement on the definitive rescue plan that has eluded them for two years.

Despite short-term market optimism about a possible deal to save the single currency, the outcome is far from certain as the EU gears up for a summit in Brussels on Thursday and Friday.

EU Economic and Monetary Affairs Commissioner Olli Rehn said: “This week, the stable future of the euro and the economic recovery in Europe and employment are at stake. This calls for a convincing package of measures from the European Council (summit).”

In an interview with daily Publico, Portuguese Prime Minister Pedro Passos Coelho said: “We have to find a response [to the crisis]. If we don’t, clearly that could represent the end of the European Union.”

If all goes according to plans being hatched in Berlin and Paris, the EU will move towards fiscal union by Friday night, agreeing on a treaty change to anchor coercive budget discipline for the 17-nation currency area.

The ECB will have cut interest rates on Thursday to counter a looming recession and taken new measures to provide longer-term funding for Europe’s teetering banks. And new prime ministers in Italy, Greece and Spain will have demonstrated their commitment to tough austerity measures.

A convincing show of political determination to stand behind the euro and surmount the crisis through closer eurozone integration could prompt the ECB to do more to support Italian and Spanish bonds.

However, if the 27-nation EU is unable to agree, the flight from eurozone bond markets may accelerate, confidence may ebb further and the crisis could become acute in January, when Italy has to start a massive refinancing campaign.

German Chancellor Angela Merkel is to visit French President Nicolas Sarkozy in Paris today to outline joint proposals on economic governance, but Berlin and Paris still have differences about how the eurozone would control national budgets.

Ms Merkel wants to empower the executive European Commission to veto national budget plans that breach EU limits before they go to parliament, with automatic sanctions for deficit sinners and the possibility to take serial offenders to the European Court of Justice for punishment.

Mr Sarkozy, fighting for re-election next May, wants eurozone leaders to have the final say, with no new supranational powers for EU institutions. Germany and France want to short-circuit the complex treaty amendment procedure by wrapping the new budget procedures into a single amended protocol 14 on the eurozone.

Tomorrow the Greek parliament is due to give final approval to a draconian 2012 austerity budget that is a condition for a second bailout package still under negotiation with private creditors, eurozone governments and the IMF.

On Wednesday and Thursday, centre-right leaders of most EU governments meet in Marseille, France. This will give “Merkozy” — as the Franco-German leadership is widely known — a last chance to lobby reticent partners to accept treaty change as crucial to securing the euro before the summit starts with a dinner on Thursday evening.