EUROPEAN LEADERS have failed to agree on common plans for an amendment to the European Union’s founding treaty – raising the possibility of the emergence of a formal two-tier European Union.
All-night talks in Brussels ended without unanimity, with the United Kingdom and Hungary both using their veto to block plans for treaty change – agreeing only to a new “fiscal compact” reinforcing previous rules on the limits for budget deficits.
British prime minister David Cameron refused to yield to a full treaty because he could not secure exemptions from certain rules for the City of London – fearing that the UK’s main financial district could be hit by tough new regulation rules.
“At the end of the day I made my judgement that it was not in Britain’s interests,” he said. “I effectively wielded the veto.”
French president Nicolas Sarkozy said Britain’s demands were “unacceptable” but was consoled by the fact that all 17 euro members – including Ireland – agreed to sign up to the deals.
Without unanimity, the 17 euro members – plus another six, with two more potentially to follow – will now sign up to what the eurozone leaders called an “international agreement”, seemingly outside of the main umbrella of the European Union.
Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania will also voluntarily sign up to the new code, with Sweden and the Czech Republic also set to join if their parliaments agree to do so.
The deal reached between those 23 countries, formally described as a “fiscal compact”, will see member states adopting legally binding “automatic correction mechanisms” to automatically reduce any Budget deficits beyond a certain threshold.
The European Commission has been tasked with finalising the deal, with the European Court of Justice then responsible for making sure it is adhered to by member states.
The deals will be introduced on a “constitutional or equivalent level” – an important clause that will likely allow Ireland to sign up to the deal without the need for a procedural referendum.
Taoiseach Enda Kenny had previously indicated – and yesterday affirmed – that he would be introducing similar “debt brake” legislation in Ireland in the New Year.
Other measures agreed by the 23 countries include a formal deal allowing a “qualified majority” of euro members to waive the economic sanctions for countries who breach the 3%-of-GDP limit for budget deficits.
They also agreed to minor amendments to the conditions that bailed-out countries must observe – and a vague clause where members will work “towards a common economic policy”, with “major economic policy reforms” to be discussed and coordinated at euro level.
In separate agreements, euro member states agreed to fast-track the introduction of the new permanent bailout fund, the European Stability Mechanism – which is now to be introduced in July 2012 instead of 2013.
Eurozone and other countries will also consider providing an extra €200 billion in loans to be given to the IMF – which, in turn, can use those loans to lend to struggling European countries.
European Council president Herman van Rompuy said after the meeting that the current approach to involving the private sector in bailout programmes – effectively, burning any bondholders – was “now officially over”, with members signing up to the IMF’s own guidelines on doing so.
Britain has denied that staying outside of the new regime will mean a two-tier European Union, with foreign secretary William Hague citing the euro itself and the Schengen agreement as previous examples of EU agreements not involving all member states.
The summit will resume in Brussels this morning – where Croatia will formally sign an accession deal to join the EU in July 2013.
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