Disagreement over treaty change proposals

EU leaders could not agree last night on whether further changes should be introduced to the EU Treaty and asked Heman Van Rompuy, the EU Council President, to come up with a way forward by the next EU Council meeting to be held in December.

Sources close to the discussions said Mr Van Rompuy was now expected to sound all the 27 member states individually to try to find a compromise.

The two EU economic powerhouses, Germany and France, kept insisting on the need of changing the treaty in order to create a permanent bail-out fund aimed at helping those member states which find themselves in deep financial problems. German Chancellor Angela Merkel and her French counterpart, President Nicolas Sarkozy argued that the current ad hoc solution designed to help Greece out of its deep economic crisis might not be the best way forward and could also be challenged legally under the current treaty.

However, many other member states, led by the UK, are opposed to the idea of a change in the treaty, citing the risk of political complications which this might raise.

Malta is adopting a cautious stand on the issue and although it agrees in principle on the need that the EU creates a permanent bail-out fund, it is quite lukewarm to the idea of a full-blown treaty change.

Maltese diplomatic sources said “a treaty change just a few months after the ratification of the Lisbon Treaty might be quite dangerous. Malta won’t really have a problem to ratify such a change but other member states, particularly the UK, might have,” the sources said.

At the same time, France and Germany are insisting on the need that those member states that derail from the EU’s fiscal rules, surpassing the deficit and debt levels, will temporary lose their voting rights at EU level. However, this idea was also rejected by the majority of member states, particularly the small ones.

The summit, to end today, is expected to endorse the report compiled by the task force on economic governance, coordinated Mr Van Rompuy, which will introduce a raft of new stringent rules for budget offenders. These will include, for the first time, the introduction of possible automatic financial sanctions.

The deal on the new sanctions process will be two-pronged.

First, an interest-bearing deposit can be levied on a member state if it has high debt that is not reduced at a “satisfactory” pace. While figures are not yet determined, the Commission has already indicated that member states should be slashing borrowing by at least five per cent of the excess (the portion over a 60 per cent of GDP limit) every year over a three-year period or face additional sanctions.

In the second phase - where a country has surpassed the three per cent deficit limit and is officially brought under the excessive deficit procedure – the interest-bearing deposit can be converted to a non-interest bearing deposit. If countries do not take “appropriate” action within six months, this is then converted to a fine, which can be increased if the country repeatedly fails to pull up its socks.

The magnitude of the sanctions should be around 0.2 per cent of GDP per year for flouting debt and deficit rules and 0.1 per cent of GDP for not abiding by broader economic policy guidelines.

By 2013, all countries should comply with a set of binding rules on how they draw up their budgets. They should also consider introducing independent fiscal councils and look at writing EU debt and deficit limits into national law.