EU set for final bid to save euro

THE EU stage is set for at least 12 hours of tough negotiations in what many see as a final bid to rescue the euro and which will again see Ireland fighting to retain its corporation tax policy.

The leaders of the 27 EU countries will sit down to dinner this evening to choose how they change the EU Treaty, Germany’s absolute demand before they consider any other issue.

Over the next two days they will try to agree to double the firewall by ramping up the bailout mechanism, the European Financial Stability Facility from €600 billion to €800bn and phase in the European Stability Mechanism (ESM) also set to have €600bn at its disposal.

Germany has signalled its willingness to increase its guarantees to allow both facilities to run together for a time.

Whether the EU leaders will manage to agree on these huge steps and the markets will accept them as a solution to the crisis was unclear in Brussels last night. Many diplomats were happy to point out however that much of what France and Germany has now agreed is to reverse their decisions taken in Deauville that caused much concern among those member states that were excluded.

Now Germany is accepting that there will not be automatic private sector involvement when countries need rescue loans, rather that it will be on a case by case basis, while France is accepting that sanctions for countries not abiding by the rules will be automatic.

European Council president Herman Van Rompuy has suggested giving the ESM a banking licence under which it could borrow from the ECB and intervene in markets.

It is hoped that this, together with rules that will ensure country’s debt and deficits are under control, will allow the European Central Bank to change its policy and start buying up sovereign debt, removing stressed euro economies from paying too much for borrowing on the open market.

Mr Van Rompuy has given the leaders two options — the first of which is a ‘Treaty change light’ by revising Protocol 12 of the Treaty and which EU leaders could agree among themselves and finalise within nine months but which would give limited changes.

This would refer to a limit of 3% of GDP budget deficit and 60% of GDP debt limit for each eurozone country and a time line for cutting each further. It would also say member states must include the ‘golden rule’ in law and give the European Court of Justice the right to ensure it was in line with what was required.

Member states would have to put in place automatic cuts in spending, increases in taxes or a combination of both if they break their ‘golden rule’ and euro area countries must also report in advance of borrowing and this would be monitored at euro area level.

Secondary legislation on the basis of Article 136 of the Treaty would then further reinforce the debt and deficit limits and allow more precise and binding measures to be adopted by member states with the cooperation of the Commission.

The second option full Treaty change complete with a convention, an inter-governmental conference and ratification in member states according to their own rules — which could mean referendum for Ireland.

Germany made it clear yesterday that it wants the full change while Ireland points out that much has been achieved that they demand in terms of enforcing budget discipline without any changes and that the minimum change should suffice.

However, Mr Van Rompuy has also opened the door to an series of on-going Treaty changes that, in the end, would see a fiscal union complete with eurobonds and debt sharing.

One senior EU diplomat said that this would be the indication that the EU was on its way to wards full fiscal union.

Another element to making changes is whether they are done by all 27 member states or the 17 eurozone countries. The full EU needs to agree that the changes can be made — which means a change to the Treaty in itself — and then the 17 could go ahead on their own.