EU leaders strike permanent bailout deal

European leaders have agreed to establish a permanent fund for bailing out future debt-ridden countries in the eurozone. At a summit held in Brussels Dec. 16-17, representatives from the 27 EU member states voted in favor of creating the European Stability Mechanism, which will replace the eurozone's temporary 750 billion euro bailout fund, the European Financial Stability Facility (EFSF), starting in 2013.

Creating such a fund requires an amendment to the Lisbon Treaty, the language of which was also agreed upon at the summit. European Council President Herman Van Rompuy said he expects final approval of the changes by March 2011, but Czech ratification of the changes will require the signature of President Václav Klaus, who has been a vocal opponent of the Lisbon Treaty and government bailouts in general.

The EFSF was created in May of this year during the Greek crisis, when the battered southern economy received a 110 billion euro rescue package from the EU and the International Monetary Fund. Ireland followed suit in late November, accepting 85 billion euros to shore up its collapsing banking system and crashing property market. Fears that Spain may be in line for a bailout had analysts warning that the temporary fund would not be enough to cover the debts and deficits of Europe's fourth-largest economy.

It is not yet clear how much private-sector bond holders stand to lose under the new system, but they will be expected to absorb some of the cost of debt restructuring on a case-by-case basis.

European Commission President José Manuel Barroso said it was "a good day for Europe" and applauded the swift action on the issue.

Several representatives at the summit from outside the eurozone will have some persuading to do when they return home to convince their constituencies that by agreeing to the permanent fund, they have not signed on for a financial commitment.

"We do need a mechanism to help the EU sort out its issues, but we also need to make sure Britain is not liable to spend money under that mechanism," UK Prime Minister David Cameron told reporters at the summit.

Van Rompuy was also careful to point out that non-eurozone members will not be expected to contribute to the fund and that any aid given to countries would be subject to "strict conditionality" in terms of recipient nations following debt restructuring programs.

Emily Thompson can be reached at
ethompson@praguepost.com