October 28, 2010 / 4:46 PM / 9 years ago

EU leaders back limited treaty change

BRUSSELS (Reuters) - The European Union agreed in principle Thursday to back calls by Germany and France for limited changes to the bloc’s main treaty to shore up Europe’s defenses against new financial crises, EU diplomats said.

EU leaders also endorsed at a summit a new set of tougher budget rules that had already been agreed by the bloc’s finance ministers, including sanctions on states that fail to keep deficits and debt in check, the envoys said.

But Berlin failed to win widespread support for demands to suspend the voting rights of member states which breach the rules. This would have required more radical treaty change and was deemed unacceptable by the European Commission.

Final approval of the whole package also depended on Germany accepting the wording of a statement giving a mandate to EU President Herman Van Rompuy to prepare the changes to the Lisbon treaty, with the support of the executive European Commission.

“There is a general agreement around the table that there will be a possibility of a limited treaty change, notably putting the euro area crisis mechanism on a more firm footing,” one EU diplomat said.

EU officials said the leaders were unlikely to issue a statement setting out their plans until after a second day of talks Friday.

France and Germany, the EU’s dominant powers, initially faced hostility to their demands to amend the treaty to create a permanent system for handling debt crises, enhance financial stability and support the euro currency.

Most leaders opposed big changes to a charter that took eight years to negotiate and became law only 10 months ago because it could involve referendums in some countries, but they agreed on the need for small amendments.

The leaders are aware that any sign that they are scaling back efforts to tighten budget discipline could unsettle financial markets worried by debt problems in euro zone countries such as Portugal, Ireland and Greece.

German Chancellor Angela Merkel told reporters as she arrived at the EU headquarters for the summit that the euro and the European Union itself could be in danger.

She repeated calls for euro zone countries to have their voting rights suspended at meetings if they fail to keep their budgets in check. But other countries said this was unacceptable and the demand was expected eventually to be blocked.

“If treaty change is to reduce the rights of member states on voting, I find it unacceptable and frankly speaking it is not realistic,” European Commission President Jose Manuel Barroso said.

MOMENTUM GROWS

Berlin wants limited treaty alterations to ensure there is a permanent and legally sound crisis-resolution system in place for countries that use the euro. It had threatened to block the budget reforms if no deal was reached.

Germany, Europe’s biggest economy, says a permanent system must replace the safety net created in May for all euro zone states after Greece’s debt crisis threatened the euro. It has opposed extending the mandate of the ad-hoc 440-billion-euro ($608-billion) European Financial Stability Facility.

Any change to an EU treaty must be approved unanimously and ratified by all member states, either in a vote of parliament or via a referendum. The European Parliament should also agree.

Despite initially criticizing the Franco-German deal as a stitch-up, other countries rallied behind limited treaty change, although Britain made its backing dependent on calls to keep EU spending in check and Poland tied its support to a deal on pension reforms, EU diplomats said.

“Van Rompuy will receive a mandate to talk to the 27 member states on the opportunity for a treaty reform. And the Commission will receive a mandate to explore the technical modalities of such a reform,” a senior EU source said.

He said Van Rompuy would study the consequences of treaty change and deliver a report at a summit in December on how to proceed, with a view to agreeing the changes by March.

Additional reporting by Brussels bureau and by Stephen Brown in Berlin; Writing by Luke Baker and Timothy Heritage; Editing by Rex Merrifield and Tim Pearce

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