Merkel gets her way on EU’s handling of crisis

GERMANY’S right wing Chancellor Angela Merkel once again got her way on how the EU should deal with the financial crisis at a two-day summit that agreed a treaty change.

This two-sentence addition to the treaty ensures that future bailouts can only be inter-governmental, and copperfastens the rule that the EU cannot bail out eurozone countries.

The leaders succeeded in not fuelling the fires of speculation by talking about the details of the new bailout mechanism they plan to replace the current temporary fund due to expire in 2013.

The Taoiseach said the idea was to ensure that ideas at an early stage should not be aired in public but should be dealt with, preferably by finance ministers, “in a discreet and careful way”.

This effort to learn the lesson of speculators turning against Ireland and other peripherals on Merkel’s public insistence of bondholders losing money in future bailouts, however, did little to convince markets.

One economics commentator, Wolfgang Munchau, headlined the summit result as, “Merkel wins — slow motion train wreck can now proceed unhindered”.

Council president Herman Von Rompuy said the question of eurobonds, which would allow countries to borrow money at common rates, and the issue of expanding the current loan facility were not discussed. Merkel said the fund was large enough.

“The more coherent economic policies are, the more we see by 2013 that states have made progress with a culture of stability, the lower the financial extent of the fund will have to be.”

Instead the message of the summit delivered by Van Rompuy and Commission President Barroso was to tighten belts, reform labour markets, cut debt and deficits, and clean up the banking sector.

Germany would have liked to build in three conditions into the treaty amendment but succeeded in getting two: that a country could only use the fund if it was “indispensable to safeguard the stability of the euro area as a whole”; and the finance would be “subject to strict conditionality”.

Due to come into force in mid-2013, the further development of the new European Stability Mechanism will be carried out by finance ministers and concluded by March. So far it has been agreed that in some cases bondholders can be forced to forfeit some of their investment, and each country will have a veto over the fund being used.

The Taoiseach hoped the text of the treaty addition was compatible with the Constitution. The Attorney General will examine it and report back to the Government with a definitive view.

The decision could be challenged in the courts, he said. Meanwhile, the process of each country approving it will go ahead.

Picture: German Chancellor Angela Merkel, and European Council president Herman Van Rompuy, speak during a round table meeting at an EU summit in Brussels. Picture: AP