As European Union leaders lock horns in Brussels over controversial Franco-German plans to reform the Lisbon Treaty, German Chancellor Angela Merkel was standing by her demands to revamp the bloc's financial rules.
Merkel and Sarkozy will likely face an uphill battle at the summit
Leaders of the European Union's 27 member states kicked off a two-day summit in Brussels on Thursday, with Chancellor Merkel looking to push through changes to the bloc's Lisbon Treaty.
News reports Thursday night quoted diplomatic sources as saying the leaders had reached a "general agreement" on a "limited treaty change," but there was no immediate elaboration or public confirmation.
The alterations proposed by Germany would be aimed at preventing a repeat of the Greek debt crisis, which threatened to bring down the euro single currency zone earlier this year.
"We need a mechanism that also includes banks and funds that earn high interest, so that it is not just the taxpayer who has sole responsibility," Merkel told reporters as she arrived at the summit.
Merkel, along with French President Nicolas Sarkozy, wants stiffer penalties against EU countries that breach the criteria of the bloc's Stability and Growth Pact, which requires eurozone countries to keep their budget deficits below three percent of gross domestic product.
The Greek debt crisis led to mass protests around the country
The penalties for failing to do so would involve tough sanctions or stripping countries that break euro rules of their voting rights in the EU Council of Ministers.
Merkel originally had been pushing for even stricter sanctions against offenders of the pact, but was forced to compromise in order to reach agreement on the matter with France. Still, several smaller EU states may push for even softer sanctions.
Also under discussion at the summit will be whether a temporary, three-year fund of emergency loans for EU states that fail to keep their books in order should be turned into a permanent crisis mechanism.
Berlin paid the lion's share into a fund to help bailout debt-laden Greece earlier this year, but the measure was highly unpopular in Germany. Furthermore, Merkel's government said it would not be able to contribute to any such fund under the current rules of the Lisbon Treaty without risking action from the the country's Constitutional Court.
Germany and France have found themselves increasingly isolated on the issue, as opposition grows to freezing voting rights, in particular, among potential violators, but also among countries worried about the negative impact of the EU's incessant bickering.
Many member countries have expressed fears of a repeat of the recently enacted Lisbon Treaty's difficult birth, which took eight years after failed referendum campaigns in France, Ireland and the Netherlands.
EU Justice Commissioner Viviane Reding maintained recently that trying to force treaty change would only reopen a "Pandora's box" after a "decade" of navel-gazing.
Herman Van Rompuy may be forced to pick up the pieces
A collection of smaller EU states have also raised their reluctance to be bullied into any treaty amendments by France and Germany, which, as the largest countries, have a reputation for dominating EU affairs.
The ever-present hesitancy of many smaller members to give up powers to Brussels is also a factor in their opposition to the German-French plan.
British Prime Minister David Cameron has also come out saying he would not support any major rewriting of the Lisbon Treaty.
The Socialist leader in the European Parliament, Martin Schulz, said the plans by Germany and France, Europe's two largest countries, would be an affront to European Council President Herman Van Rompuy, who has been called on to chair a special task force looking into EU economic governance.
"I ask myself if Mr Van Rompuy can see the consequences here," Schulz said. "He gets an order to detail important reforms, but before he can present anything France and Germany say, 'no, we have already decided everything.'"
Former Belgian prime minister Guy Verhofstadt, who now leads the liberal group in the European Parliament, labeled Germany's backtrack on its original strict-sanctions goal as puzzling.
"I find this utterly incomprehensible, particularly from Germany," he said. "For 10 months they have demanded stricter punishment, and then they move in the opposite direction."
The summit opens Thursday afternoon and is set to conclude Friday.
Authors: Darren Mara, Andrew Bowen (AFP, AP, Reuters)
Editor: Nancy Isenson