EU leaders tackle vexed question of treaty change

(BRUSSELS) - National leaders confront the vexed question Thursday of whether to undertake an arduous rewrite of the treaty binding the European Union in a bid to prevent a new debt crisis.

Germany will argue at a two-day summit in Brussels that the Lisbon Treaty needs to be updated if the EU is to adequately tighten economic governance across internal borders in the wake of this year's Greek debt crisis.

Germany is supported by France, which wrung a major concession out of Berlin when Chancellor Angela Merkel agreed to soften penalties against countries failing to meet pre-set budgetary targets. Paris wanted sanctions less automatic and subject to a political vote.

But the deal between Merkel and President Nicolas Sarkozy last week has raised a storm of objections.

Not least are fears of a repeat of the troubles it took to spawn the just-enacted Lisbon Treaty, that took eight years to ratify after failed referendum campaigns in France, the Netherlands and Ireland.

This week two of the EU's most senior executives, economic affairs commissioner Olli Rehn and justice heavyweight Viviane Reding, each came out strongly against Berlin's demands.

Their interventions followed a slew of negative comments from other states and fears that plans for a treaty rewrite could prompt some amid the 27 leaders to show up at the Thursday-Friday summit with a shopping list of unrelated demands.

British Prime Minister David Cameron, for instance, has already spelled out that he wants the bloc to back his call for a total freeze on the EU's budget for 2011.

The horse-trading is complicated, as the French willingness to explore treaty change shows.

Paris above all wanted to see a temporary, three-year fund of emergency loans for states that fail to make ends meet, turned into a permanent crisis pot.

Making the fund permanent requires a treaty change due to the provisions of the German constitution.

If Germany does not get its way, it could threaten to put the creation and shape of such a post-2013 safety net for overspending euro nations back in doubt.

The risk for France and weak euro states such as Ireland, Portugal or even Belgium, is that Berlin will not cough up again in the future unless it gets the legal certainty it needs to counter domestic political opposition.

Opinion polls in Germany have expressed huge popular opposition to paying for profligate euro partners' budgetary mistakes.

Merkel fundamentally wants a different type of emergency fund set up from the existing one, introduced this year and as yet untapped.

Her plans would leave a far lesser burden on national taxpayers and require much greater involvement from private banks.

A German governmental source said on Tuesday that "the chancellor is on the phone to everyone."

The source underlined it would be "politically unacceptable" to Berlin to proceed without a rewrite detailing the involvement of "private creditors, so that states using taxpayers' funds are not the only ones available" to rescue failing EU partners.

As the EU's biggest nation, Germany paid out the lion's share of euro states' loans to Greece and made the greatest commitments to the 440-billion-euro rescue pot, the European Financial Stability Fund (EFSF).

Germany says the changes it wants to see could be incorporated when Croatia becomes the 28th EU state, expected in 2011 or 2012.

But Rehn pointedly says he would "by far prefer" that national leaders steer clear of treaty change, suggesting that other legal avenues are still available.

He said the important issue was whether a replacement for the EFSF would limit the temptation for states in trouble to keep spending in the knowledge that partners would come to the rescue.

In a rare intervention, given it is not part of her policy brief, Reding said it seemed "completely irresponsible to put illusions about new treaties on the table."

Luxembourg Foreign Minister Jean Asselborn has warned of "a risk that we will be plunged back into months and years of navel-gazing."

European Council