They had described it as their “last chance” to save not just the euro but the European Union itself and after almost 12 hours of marathon discussions, the members of the Euro group reached an “intergovernmental agreement” to strengthen budgetary discipline. A majority of countries, led by Germany and France, agreed to move ahead with a separate intergovernmental treaty, which left Britain and the other dissenter, Hungary, isolated.
States will now have to submit their national budgets to EU scrutiny. Hungary and Britain stayed out of it. The European Central Bank (ECB) expressed cautious satisfaction.
Friday's crisis meeting in Brussels witnessed open confrontation between Britain's David Cameron and France's Nicolas Sarkozy, and the EU failed to agree on a revision of the treaty that would lead to greater fiscal union. Such changes would require the approval of all 27 members of the Union. The meeting, however, adopted a flurry of measures including the so-called “golden rule” on controlling fiscal deficits with automatic penalties for those who allow their national debt to cross certain pre-determined thresholds.
EU members are hoping that this will be enough to convince the ECB to do more to control the European debt crisis that is threatening to spiral out of control. Markets reacted positively on Friday morning except in Asia, where the mood was bearish.
“We would have preferred an agreement of all 27 members. That was not possible because our British friends made demands deemed unacceptable by all the other countries,” said Mr. Sarkozy.
Mr. Cameron had demanded that the City of London be exempt from EU surveillance of the financial sector. This was judged to be unacceptable by the others. “It was a difficult decision but that was the right one”, Mr. Cameron declared after threatening to use his veto. Hungary followed Britain's lead while Sweden and the Czech Republic said they needed more time to decide. The intergovernmental agreement will be signed in due course by the countries belonging to the eurozone.
Britain's decision to prevent a revision of the EU treaty allowing Brussels to exercise greater budgetary and fiscal control was seen as a clear sign that the EU is moving at variable speeds.
“Europe is 27 members, not 17 or 17-plus,” declared Donald Tusk, Polish Prime Minister. He said any other solution “would be fatal for Europe”.
However, this summit also saw the end of hopes harboured by some members for the issue of eurobonds. Germany's intransigence put paid to that idea, perhaps for good. So in the short term, European states will themselves have to bring the strength of the International Monetary Fund to €200 billion in the form of loans. They thus hope to attract capital from emerging nations who have repeatedly said they would play their part in solving Europe's debt crisis but only if they could make their loans through a special IMF mechanism.