Twenty-three European leaders are pressing ahead with a move towards a two-speed Europe and new fiscal rules, after the British Prime Minister, Mr David Cameron, vetoed a full treaty change for all EU members.
Seventeen members of the Euro zone and at least six other EU members – Romania, Bulgaria, Denmark, Latvia, Lithuania, and Poland – will go ahead with plans for a new treaty, leaders said in the early hours of Friday, following a night of lengthy negotiations.
Only Britain has so far voted outright against the changes, with Sweden, Hungary and the Czech Republic reserving their decision until their Parliaments are consulted. It is hoped that the treaty could be signed by March.
“We agreed on a new fiscal compact. It means we all commit to a new European strong fiscal rule” it means reinforcing our rules on excessive debt procedures by making them more automatic – member states will have to submit draft budgetary plans to the commission,” said Mr Herman Van Rompuy, President of the European Council. “This was a broad agreement on the substance – as regards the form, everyone wants to make the agreement solidly binding.”
In addition to the decision on a treaty towards greater fiscal union, the countries also agreed to bring forward a €500-billion European Stability Mechanism rescue fund, which would be put in place by July next year, and would work alongside the €440-billion European Financial Stability Facility. EU nations will also give the IMF a €200-million loan to help it in its support of struggling Euro zone nations.
Leaders also agreed to ditch the PSI ‘Private Sector Involvement' doctrine that would require bondholders to share the costs of any bailout.
“I have always said that the 17 states of the Euro zone need to win back credibility – this will happen with today's decision,” the German Chancellor, Ms Angela Merkel, said on Friday.
Negotiations are continuing on Friday, without Britain.
Britain's move may not surprise many, but is still a significant moment in its relationship with the European Union, leaving it in a relatively isolated position.
Mr Cameron defended his decision to veto the treaty, arguing that the failure of other leaders to agree to safeguards and opt outs for Britain left him with little alternative.
“I said before coming to Brussels that if I couldn't get adequate safeguards for Britain in a new European treaty, then I wouldn't agree to it. What is on offer isn't in Britain's interests, so I didn't agree to it.”
In Britain he faced criticism for isolating Britain.
“Mr David Cameron should be building alliances. The UK went into the summit without them and the outcome showed we lacked influence,” tweeted Mr Ed Miliband, leader of the Labour Party.
The French President, Mr Nicholas Sarkozy, had described Mr Cameron's demand that a protocol be written into the treaty to allow Britain to opt out of certain rules governing the financial services sector as ‘unacceptable.'
A waiver simply wasn't possible, given the significant role that a lack of adequate regulation of financial services had had in creating the financial crisis in the first place, he said.
Markets have been cautious in their reaction, reflecting their uncertainty about the consequences of the decision. The fact that the agreement bypasses existing EU treaties could make it easier to pass through national legislatures. At the same time it is unclear how such a treaty would be implemented, including the extent of the involvement of existing EU institutions.