European leaders will meet this week for yet another summit to discuss ways to save the euro, and this time they are talking about rewriting European Union treaties.
The key players — Germany, France and the European Central Bank — all broached the subject last week, saying closer political and economic ties are needed to ensure the future of a unified Europe.
Early Monday, French President Nicolas Sarkozy and German Chancellor Angela Merkel met to hammer out the details of a new fiscal pact.
Among other things, the pact would change existing laws to make it easier for EU regulators to challenge budget policies of member nations.
The overarching idea is to begin building a fiscal union that will correct flaws within the EU, which has a common currency and shared monetary policy, but no mechanism to ensure that all members are financially sound.
“We are beginning to create the fiscal union,” Merkel told lawmakers Friday. But she stressed that the European debt crisis will not be resolved overnight, saying the process “will take years.”
In what is seen as a concession by Sarkozy, the pact includes automatic sanctions for member states that violate an existing rule to keep budget deficits under 3% of gross domestic product.
On Thursday and Friday, government leaders from all 27 EU nations will meet in Brussels for what is expected to be the final meeting of the European Council in a year that has seen more than its fair share of such summits.
Merkel and Sarkozy both said last week that a fiscal pact should be written into the EU treaty so that budget rules can be properly enforced through broader oversight and automatic penalties for nations that fail to comply.
“Europe needs to be rethought,” Sarkozy said. “It must be redesigned.”
In a sign of what’s at stake for the United States, Treasury Secretary Tim Geithner will spend most of this week in Europe to meet with top officials, including Sarkozy and the newly appointed Italian Prime Minister Mario Monti.
President Obama has called the crisis a serious threat to the U.S. economy, noting that Europe is one of America’s biggest trading partners.
While both Merkel and Sarkozy agree on the need to form a fiscal union, they appear to be at odds over what that could mean.
Last Friday, Merkel again ruled out the creation of eurobonds, which could drive up borrowing costs for creditworthy nations such as Germany. The European Commission has proposed issuing so-called stability bonds as part of a plan to pool government debt across Europe.
Merkel also stressed that the ECB should remain independent, underscoring the deep opposition in Germany to the central bank risking inflation by printing money to prop up troubled governments.
Sarkozy also said the ECB should remain independent, but he sounded much less draconian than his German counterpart.
CNN
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