EU leaders meeting tonight for a crucial summit on the future of the euro will be presented with two main menus to choose from.

The pre-summit atmosphere is optimistic

The first is the EU’s institutional approach, prepared by Council President Herman Van Rompuy, offering up a “two-step treaty change”.

The second is a full-blown, fast overhaul of the current Lisbon Treaty cooked up by the two biggest economies in the bloc, France and Germany.

There is also a third choice – that of the creation of a completely new Eurozone Treaty – but it is said to be the unlikeliest of options.

Shrill warnings are being sounded that the eurozone faces potential break-up and “economic catastrophe” if a formula for financial stability is not found fast in the face of some members’ massive debts. But the pre-summit atmosphere in EU corridors in Brussels was yesterday optimistic as some details of the proposals leaked out. Diplomats told The Times, however, that leaders had been told to prepare for “a long night”.

The crucial behind-closed-doors negotiations will start this afternoon, a thousand kilometres away from the EU capital, where in Marseilles the European People’s Party (EPP) will hold its congress to be attended by the majority of Eurozone heads of state including Malta’s Prime Minister Lawrence Gonzi.

Hosted by French President Nikolas Sarkozy and with the participation of European Council President Van Rompuy and Commission President Barroso, the majority of EU leaders are expected to hold their first preliminary discussions there.

Yesterday, Mr Van Rompuy sent to the 27 EU capitals a draft text of a possible final solution to the eurozone crisis.

Mr Van Rompy prefers, like Malta, not to rush immediately into a full-blown treaty change as this is considered to be very time-consuming and might also create ratification complications with referenda, particularly in Ireland and the Netherlands. He is instead suggesting a “two step treaty change”.

According to a leaked EU Council document seen by The Times, he is proposing that the 27 leaders agree to amend a protocol in the current Treaty to enhance fiscal discipline without the need of going through the ratification process. The next phase would be for other long-term Treaty changes to be tackled next year but without the need for urgency.

The protocol amendment could include an obligation for eurozone member states to reach and maintain a balanced budget over the economic cycle and an obligation to introduce a rule in their national legal systems, “preferably at constitutional or equivalent level”, to move towards a balanced budget.

We have to substantially reinforce the foundations of the Economic and Monetary Union

It would then be for the European Court of Justice (ECJ) to check that national deficit rules comply with the eurozone’s requirements.

National rules should also be accompanied by an automatic correction mechanism, such as cutting spending or raising taxes, if a country deviated from the balanced budget. According to the EU Council President, whose approach is supported by the European Commission, the second phase might involve changes to the EU’s treaties which would be “more time consuming and subject to ratification” in all member states but would allow “more fundamental changes”.

On the other hand, as promised on Monday, France and Germany yesterday presented a plan to Mr Van Rompuy which suggests a more radical approach: a full Treaty change by next March.

In their letter, signed by Chancellor Angela Merkel and President Nicolas Sarkozy, the leaders expressed the need to agree on a “renewed contract between the Euro area member states”.

“To build a lasting Stability and Growth Union which allows us to preserve our unique European model combining economic success and social responsibility, we have to substantially reinforce the foundations of the EMU (Economic and Monetary Union),” they wrote.

The “Merkozy” agreement – as it is being dubbed in Brussels – includes provisions in the new Treaty for automatic sanctions against those member states surpassing the three per cent of GDP deficit rule, along with binding commitments in each and every national constitution obliging member states to move towards a balanced budget. It gives powers to the European Court of Justice “to verify the transposition into national legislation”.

Of most direct interest to Malta, the Merkozy plan is also seeking a new common legal framework to allow for faster progress in specific areas such as: financial regulation, labour markets, convergence and harmonisation of a corporate tax base and creation of a financial transaction tax”.

The latter two initiatives are vehemently opposed by Malta although its co-opponent, the UK, is outside of the eurozone.