EU leaders' latest agreement still leaves unfinished work
BRUSSELS, Belgium -- After all the hype about the do-or-die talks to save the euro, there was a strange absence of urgency about the latest summit of European Union leaders.
The two-day meeting that ended Friday produced no silver bullet to end the euro-crisis and left out some critical details that may require future summits to resolve.
Stocks and the euro rose on the news, despite the deep rift which emerged between Britain and the other EU members and the summit's lack of any clear signal on central bank intervention to save the euro, which many had considered essential to restore confidence in the common currency.
Central to what the summit did decide is the creation of a new "fiscal compact" among the 17 eurozone nations and up to nine of the other EU members. Only Britain, which doesn't use the euro, said it would stay out.
The plan will involve unprecedented oversight of national economies by the EU with sanctions for governments that run up high deficits as part of a German-inspired drive to restore market confidence in eurozone nations' debt and prevent a repeat of the current debt crisis.
"This is a breakthrough toward a union of stability. The fiscal union will be developed step by step," German Chancellor Angela Merkel told reporters after the talks. "We will use the crisis as a chance for a new beginning."
British Prime Minister David Cameron vetoed Germany's call for a new EU-wide treaty on the tough new fiscal rules. Under pressure from the powerful euro-skeptic wing of his Conservative Party, Cameron refused to hand over more sovereignty to Brussels and demanded guarantees to shield the City of London financial district from EU regulation - galling the other leaders.
"London would get an advantageous competitive position above Amsterdam, Luxembourg, Paris and Frankfurt, and that's going too far," said Dutch Prime Minister Mark Rutte.
The new economic measures should be written into a new treaty to be concluded by March without Britain. Under the deal, nations will make a constitutional commitment to balanced budgets with a structural deficit of less than 0.5% of gross domestic product. Many European countries have run much higher deficits since the 2008 financial crisis and the agreement allows deficit caps to be broken during recessions.
Those that break deficit rules will face sanctions. Struggling euro-zone members will be obliged to summit national budgets to EU authorities for approval.
"We are committed to working towards a common economic policy," the eurozone leaders said in a statement. "All major economic policy reforms planned by euro-area member states will be discussed and coordinated."
Markets had been hoping that such an agreement on fiscal discipline would lead Merkel to relax opposition to the European Central Bank intervening on bond markets as a lender of last resort to key euro-zone nations like Italy and Spain. However, there was no such signal from Merkel or the other leaders.
In fact, ECB President Mario Draghi on Thursday dampened hopes that the Frankfurt-based bank would intervene massively on the primary market to ease nations' debts either directly or via loans to the International Monetary Fund. Draghi suggested that would violate the EU's current treaty. He said the EU's principle bulwark in defense of cash-strapped governments should be the two special funds which leaders agreed to set up in response to the crisis.
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