Friday, October 29, 2010

sets course for treaty change, new safety net

BRUSSELS, Oct 29 (Reuters) - European Union leaders set in motion on Friday plans to amend the EU\'s main treaty to create a permanent system to ward off financial crises, and said that a summit deal on new budget rules would strengthen the euro.

They also endorsed tougher sanctions on states that do not keep debt in check and said leaders would aim to agree the steps at a meeting in December. [ID:nLDE69I1FB].

Analysts said the plans, aimed at raising confidence in the euro and preventing future financial emergencies, face a long and potentially divisive battle to be enacted but appear to be a victory for Germany\'s push for greater financial stringency.

At a Brussels summit, leaders of the 27 EU states committed the bloc to creating a permanent mechanism to replace a 440-billion euro ($611 billion) emergency safety net for indebted euro zone countries when it expires in mid-2013.

Germany and France also succeeded in overcoming initially fierce hostility to their calls for changes in the EU\'s Lisbon treaty -- but only after many countries ruled out far-reaching amendments that would have forced them to hold public referendums which would have been likely to fail. [ID:nLDE69R1FF]

\"We are doing everything to ensure that there will never be a repeat of the crisis we have had,\" German Chancellor Angela Merkel told reporters.

\"I think it is important to create a clear culture of stability in Europe. That is the ultimate for good cohesion in the EU. Europe makes us strong but this Europe needs rules.\"

There was no immediate reaction to the summit agreements from financial markets. Any sign that the EU is backtracking would unsettle investors already worried by debt problems in countries such as Portugal, Greece and Ireland. [ID:nLDE69R0V7]

Calls by Berlin to suspend the voting rights of countries that breach the budget rules were put on the back burner. But German officials celebrated the fact that the EU had agreed on treaty change that a few months earlier had seemed impossible. [ID:nLDE69L0UX]

Senior EU sources said European Central Bank President Jean-Claude Trichet reiterated concerns that the budget rules were not tight enough and that drawn-out negotiations on the permanent mechanism could upset markets.

The sources quoted him as saying lengthy negotiations could be a \"problem\" when the economic crisis is still very deep and markets remain tense.

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