EU leaders give green light to tweak treaty

Initially horrified at the Franco-German demand for a wholesale re-writing of the EU rulebook only a year after the Lisbon Treaty had been approved, the other EU leaders are now warming to the idea of a "limited" tweaking of the treaty in a way that they hope will avoid major political fall-out.

"Heads of state and government agree on the need for member states to establish a permanent crisis mechanism to safeguard the financial stability of the euro area as a whole and invite the president of the European Council to undertake consultations with the members of the European Council on a limited treaty change required to that effect," the draft conclusions of a two-day summit in Brussels read.

Berlin in particular has been worried that while a long-term bail-out facility may be necessary on top of existing measures up to 2013, any permanent structure along could run afoul of treaty rules forbidding EU bail-outs of member states and be struck down by Germany's strict Constitutional Court.

Ms Merkel's government, leading the economic powerhouse and top EU paymaster, is also confronted with a population averse to being left with the tab for further debt disasters elsewhere in the eurozone.

A set of clearly defined default procedures would signal to investors that they, rather than taxpayers alone, would be on the hook for at least part of the costs of the bankruptcy of a country. Such a mechanism would also be designed to deal with sovereign defaults without setting off a cascading panic in the markets similar to the Greek debt crisis that shook Europe in spring.

"No country is opposed in principle to a moderate treaty change but they want to know what the political and legal consequences of this would be," said one source close to the discussions.

Two moves have been tentatively agreed. EU Council President Herman Van Rompuy is to be tasked with exploring whether such a limited change can be done via a simplified revision procedure, in which EU leaders can make the change without having to call a full Intergovernmental Conference (IGC) - involving negotiations between the governments, consultations with the European Parliament and the participation of the European Commission, which could open a Pandora's Box of other new proposals.

Mr Van Rompuy would also explore whether legally this can be done without the tweak having to be presented to national parliaments for approval, which would almost certainly grind down the process, or even further, whether such a move would provoke referendums in some countries, notably Ireland, which maintains a constitutional requirement that any shift in powers from Dublin to Brussels be approved in a vote by the people.

He would report back to the European Council in December.

The European Commission meanwhile is to be tasked with fleshing out the details of the structure of a permanent bail-out fund and crisis resolution procedures - a 'crisis management mechanism'.

However, the Franco-German demand that EU leaders agree to punish spendthrift member states by revoking their voting rights in the Council of Ministers, a massive change to the structure of the EU that would certainly require an IGC and accompanying national approval and referendums, appears to be off the table, although Germany so far has not completely backed down on the concept.

"Everyone reckons that this is essentially just a bargaining chip on Germany's part to get what they really want," said one EU source.

European Commission President Jose Manuel Barroso said: "If treaty change is to reduce the rights of member states on voting, I find it unacceptable and frankly speaking it is not realistic. It is incompatible with the idea of limited treaty change and it will never be accepted by the unanimity of member states. And as you know a treaty change requires unanimity."

"We are looking at something very limited."