EU accepts limited fiscal union...UK stays out

The European Union (EU) leaders agreed on new rules for budget discipline among its member nations but failed to reach a consensus on treaty changes on reported resistance from few others like the UK. Any deal may now just involve the 17 nations that share the euro, plus others who may want to join, the reports said. An agreement involving all 27 EU members fell through after British Prime Minister David Cameron reportedly demanded concessions that Germany and France were not willing to give. EU leaders chose to create a new inter-governmental treaty which will be negotiated only among 23 of the bloc’s members. The split on the new budget rules will leave the UK and Hungary out while the Czech Republic and Sweden are still considering whether to join or not.



Separately, the EU members reached an agreement to provide up to an extra €200bn (US$266.7bn) to fight the debt crisis and to compliment the new fiscal compact. European Council President Herman Van Rompuy said that euro area and other European states will aim to make the extra money available to the IMF. IMF Managing Director Christine Lagarde said that a EU contribution of as much as €200bn to the fund will be confirmed within 10 days.

Additionally, the European Financial Stability Facility (EFSF) leverage will be rapidly available, he said. The EU leaders also accelerated the startup of the planned €500bn rescue fund called the European Stability Mechanism (ESM). The announcements were made at a press conference after the end of the first day of the EU Summit.

Besides, the EU leaders dropped demand that investors share the cost of future bailouts. “As regards private-sector involvement, we have made a major change in our doctrine: from now on we will strictly adhere to the IMF principles and doctrines,” Rompuy said. “Our first approach to PSI, which had a very negative effect on debt markets is now officially over.”

“It’s a very good outcome for euro area members and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro-area countries,” ECB President Mario Draghi told reporters in Brussels. The EU will pursue an inter-governmental deal without all members, French president Nicolas Sarkozy said. "We are doing everything we can to save the euro," he said.

German Chancellor Angela Merkel said that the leaders of the 17 eurozone nations agreed to tighten budget controls. Merkel said that the European Union (EU) is creating a new fiscal union for euro stability. “We will create a new fiscal union for the euro that is a stability union by creating a debt brake for all euro countries and all countries that want to join up,” she told reporters in Brussels.

EU leaders would have preferred an unanimous agreement on ways to strengthen the region, European Commission President Jose Barroso said. “We believe that if it’s properly drafted, it will increase what was our goal, increase the credibility, increase the rules we have today for the euro area,” Barroso said.