EU summit solves treaty debate, puts off other rows

BRUSSELS - European Union leaders agreed to change the bloc’s founding treaty to set up a permanent eurozone bailout system, but put off other key battles until next year, as a two-day summit closed in Brussels Friday.

The bloc has been shaken all year by financial market turmoil, triggered by soaring debt levels across Europe. The permanent bailout system is meant to reassure markets.

“We agreed on the limited treaty amendment which will allow the establishment of a permanent crisis mechanism for the stability of the eurozone,” said summit chairman Herman Van Rompuy as he closed the meeting.

The Belgian wanted to comfort investors further by proposing a joint statement of eurozone leaders pledging to defend the euro come what may, and to ensure “the availability of adequate financial support” through the bloc’s current temporary eurozone safety net.

Luxembourg premier Jean-Claude Juncker said that amounted to a promise to enlarge the eurozone’s current temporary bailout system, valued at 750 billion euros ($1 trillion), if it proves too small to stave off default in major euro states.

“If all the (leaders) of the eurozone have declared that everything will be done to safeguard financial stability in the eurozone, you can assume that the decision will be taken to increase the resources of the current rescue fund if need be,” he said.

But diplomats said that Finnish Prime Minister Mari Kiviniemi, particularly, opposed any hint that the fund could be enlarged, forcing the summit to drop the come-what-may reference from that part of its declaration.

A far heavier row loomed up in the summit’s closing hours as Britain, France and Germany circulated a draft letter calling for the EU’s next seven-year budget, which is to run from 2014 to 2020, to be capped in line with inflation.

Budget talks are traditionally the most cut-throat negotiations in EU politics, but the formal debate is not due to begin until June 2011, once the EU executive, the European Commission, makes a draft.

The next budget “will come as member states make extraordinary efforts to clean up public finances. The challenge for the EU in the coming years will not be to spend more, but to spend better,” reads the draft seen by DPA.

Britain, France and Germany are among the largest contributors to the EU budget. British Prime Minister David Cameron said that they and “a number” of other states would publish the text Saturday.

The call provoked explosions behind the scenes, with diplomats from new EU states in Central and Eastern Europe - who expect to receive the most support from the next budget - reacting with unheard-of vehemence.

“If they go through with this, it’s a declaration of war,” a representative of one new member told DPA.

Some diplomats also accused Cameron of cutting a deal with France to keep EU farm spending - long a target of British ire - to current levels while cutting spending on infrastructure and investment projects in new member states. Cameron denied the claims.

Public reactions of leaders from the region were more measured.

“It’s a normal stance, and it’s mainly playing, not for Europe, but for internal politics,” said Lithuanian President Dalia Grybauskaite, who formerly served as EU budget commissioner.

Hungarian Prime Minister Viktor Orban, whose government is set to take over the EU’s rotating presidency Jan 1, said that the letter “could complicate matters if we let it, but we won’t”.

Separately, euro leaders pledged to agree on new EU fiscal policing rules by mid-2011 and promised further “stress tests” on the solvency of the European banking system.

“Next year, we will discuss how to make even clearer the common standards of our economic policies, especially in the eurozone,” German Chancellor Angela Merkel said.