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. But efforts to get unanimity among the 27 members of the European Union, as desired by Germany, failed as Britain and Hungary refused to go along for now.
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.
Hungary said it wanted to examine the details, leaving Britain isolated.
“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.
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 euro zone, 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.
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.”
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.”
European Central Bank President Mario Draghi called the decision a step forward for the stricter budget rules he has said are necessary if the 17-nation euro zone is to emerge stronger from two years of market turmoil.
“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.
Sarkozy and Merkel said the intention was now to forge an intergovernmental treaty among the euro zone 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.”
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.
“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,” he said.
“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,” Mr. Van Rompuy said.
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.”
Cameron’s decision to stay out of the treaty-change camp could spell problems for Britain, although it was expected to find favor with the increasingly vocal eurosceptic wing of his Conservative party initially.
“Cameron was clumsy in his maneuvering,” 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.
The economy of the 17 countries in the euro currency union is almost stagnant, growing just 0.2 percent in the third quarter, with unemployment at 10.3 percent. Economists expect the euro zone economy to slip into recession early next year if it has not happened already. Declining output makes the debt crisis even worse by cutting tax receipts. [via Reuters and The New York Times]