EU averts eurozone crisis, for now

EU senior officials averted a new eurozone crisis by cobbling together a deal that offered temporary respite on debt but left the 27-member group deeply divided. In what analysts hoped could be the least bad outcome, European Central Bank rescue packages would bail out troubled Italy and Spain to help restore market confidence but EU members would be under a strict disciplinary regime to desist from borrowing without consultation or running high deficits. German Chancellor Angela Merkel and French President Nicolas Sarkozy, main architects of the latest effort, called a "fiscal compact," held out hope a combination of the bailouts and controlled borrowing would help stimulate the economy. However, anger over more taxpayer cash being funneled into the European Union's latest jab at financial engineering was on the rise in the larger member states, especially Germany. Britain made itself more unpopular on the continent by refusing to sign the deal, leading analysts to predict a two-tier EU was already on the way or that a divorce was on the horizon with members moving away from the center in different ways. All 17 eurozone nations are in, for now, as are the remaining nine who promised to join but only after consultations and, in some cases, approval from their parliaments. Some countries, including Ireland, may have to have referendums to get approval. But the leaders shied from recasting the union's treaty, a hugely controversial proposal that threatened to put the member countries' governments in greater difficulties than they have now. In practical terms, the new deal means the assenting politicians signed away greater chunks of national sovereignty by agreeing to toe the Brussels line on borrowing and other financial disciplines. The deal clips away at powers of governments as well as the member states on how they manage their budgets, run their economies and avoid getting into debt in excess of 3 percent of the gross domestic product. The deal requires member states to enshrine, where required, the new fiscal regime into national constitutions. If all goes well, EU leaders expect the deal to be in place by March 2012, working in tandem with the European Stability Mechanism, the union's $666 billion bailout fund. Critics say the deal could prove hard to enforce and EU could still face a cash crunch if it was required to bail out more of the troubled economies or if the signatory countries failed in their attempts to hold back their deficits. Merkel said she believed the accord would stabilize the euro. "I have always said, the 17 states of the eurogroup have to regain credibility," she said. "And I believe with today's decisions this can and will be achieved." The Economist called the final outcome "Europe's great divorce" and the Financial Times said the split was deeper than generally assumed. European officials and analysts said the accord made sense as it would be quicker to enforce than a treaty change. However, in a desperate bid to save the euro, the 26 apart from Britain had opted for closer integration and ceded some of their sovereignty to Brussels in the process. None of this helps to wish away high sovereign debts in several member states other than Italy and Spain, a problem that may challenge the eurozone yet again.