EU will reopen Lisbon Treaty

European leaders reluctantly agreed to reopen the controversial Lisbon Treaty in order to pave the way for a permanent eurozone crisis fund at an Oct. 28-29 summit in Brussels.

The move came from a joint push by France and Germany and called for a "limited" redrafting of the treaty that has only been in force for 11 months. Amendments would specifically target a clause banning eurozone members from bailing out one another.

A permanent crisis fund will be created to replace the temporary 440 billion euro ($616 billion/10.8 trillion Kč) one formed in May at the height of the Greek crisis, which is due to expire in 2013. Germany contributed a hefty 110 billion euros to that fund, and a redrafting will seek to set up a permanent bailout mechanism with increased cost being borne by private bondholders and investors rather than taxpayers. Stricter rules on fiscal imbalances are likely to be a part of any changes.

"Compared to the current situation, sanctions will kick in earlier and progressively," European Council President Herman Van Rompuy said at a press conference. "Public debt will be taken more into account alongside the deficit criteria. Sanctions will be possible before the 3 percent annual deficit is reached if not enough preventive action is taken."

European Central Bank President Jean-Claude Trichet warns that the proposed changes could drive up short-term borrowing costs, harming already debt-stricken eurozone economies, according to an Oct. 29 report in The Financial Times.

"The president of the European Central Bank looks at doing everything to calm the markets," German Chancellor Angela Merkel said. "We support him on this, but we also look at our people and their very legitimate belief they should not bear the cost."

On the eve of the summit, Foreign Affairs Minister Karel Schwarzenberg said he was against reopening the treaty.

"A great deal ... of my counterparts are of the same opinion," Schwarzenberg said. "Reopening the issue and risking the same disputes might break up the whole affair."

Ten days before European leaders gathered in Brussels, Merkel and French President Nicolas Sarkozy met in Deauville, France. The pair struck a deal with Merkel agreeing to loosen some proposed restrictions on state budget deficits and Sarkozy pledging to reopen the Lisbon Treaty.

"Everybody agreed that there must be a permanent crisis mechanism," Merkel told journalists at the Brussels summit.

At the same meeting, Finland proposed making tax rates common across the European Union, a proposal the Czech Republic led the calls to reject.

"We have rejected attempts to harmonize taxes and limit tax competition," Prime Minister Petr Nečas said. "It was the Czech Republic which expressed the strongest protest against this proposal, and we have gained support of other countries."

European leaders will meet again in December to move forward with changes. All alterations to the Lisbon Treaty must be approved unanimously by all member states, including those outside the eurozone.

Nečas said if the changes to Lisbon included proposals that would shift more power to the EU level, he would call for a public referendum. He has also expressed distaste for any dictates from Brussels regarding national budgets.

Benjamin Cunningham can be reached at
bcunningham@praguepost.com