European leaders have agreed on a permanent rescue fund to cover countries in need of financial assistance. But at Germany's behest, aid will only be paid if it's considered 'indispensable' to the stability of the euro.
EU Leaders were meeting for the seventh time this year
European leaders have set up a permament emergency fund to help debt-laden countries, and have agreed to rewrite some of the bloc's rules in a bid to shore up the value of the euro.
Germany lobbied hard for changes to the Lisbon Treaty and a pledge to pay out aid only if it's "indispensable," as leaders meeting in Brussels on Thursday agreed on the need to make a temporary trillion dollar rescue fund into a permanent one.
Merkel said she was satisfied with the result
"We stand ready to do whatever is required to ensure the stability of the eurozone," said the president of the European Council, Herman van Rompuy, after Thursday's meeting.
Chancellor Angela Merkel expressed satisfaction with the results of the meeting, describing it as a "further step" towards greater coordination of economic policy within the eurozone.
"We will do whatever is required to secure the financial stability of the euro," Merkel told reporters at a Friday press conference after the summit wrapped up.
French President Nicolas Sarkozy, a close ally of Merkel's on the issue of eurozone economic alignment, announced that he and Merkel would be presenting new proposals on how to make the member countries work more closely.
"We have to tackle the competitiveness gaps within the 16 eurozone countries," Sarkozy said.
From the middle of 2013, loans and guarantees similar to those offered to Greece and Ireland this year will only be offered if judged to be "indispensable" in saving the euro as a currency.
No spending cuts, no help
That wording was added at the insistence of Germany, likely to be the biggest individual contributor to future rescue funding. Berlin also stipulated that any bailout deal would require the recipient government to introduce a program of public spending cuts.
The European Central Bank is to increase its capital base
A two-sentence amendment was made to the EU's Lisbon Treaty to permit the creation of the permanent rescue facility, the European Stability Mechanism. Article 125 of the 2007 Lisbon Treaty stated that the European Union "shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other government bodies..."
Merkel pressed for changes to the article, because she said that a permanent mechanism might otherwise face a successful challenge in Germany’s Constitutional Court.
Leaders hope to have the necessary changes to the treaty ratified by the end of 2012, with decisions on enacting rescue packages to be taken unanimously - effectively giving Germany a veto.
It was also decided that there was no need to increase the existing rescue fund, which some analysts say would be insufficient in the case of future bailouts. A number of countries led by Germany put forward the argument that there was sufficient capacity in the present reserve.
Bonds kept off agenda
Discussion about the introduction of "E-bonds," which would allow all European nations to borrow money at common rates, was kept off the agenda.
Merkel has said that the common bond plan "would not rid Europe of its weaknesses, it would simply transmit them across the board."
Portugal is next on the list of countries likely to need help
Underlining the need to reassure financial markets over fears that Portugal and Spain may be in need of bailouts soon, the European Central Bank also announced on Thursday that it would double its capital to 10.76 billion euros ($14.3 billion) to cope with an increase in market volatility.
Leaders were meeting in their seventh summit of a busy year, as markets have grown increasingly wary that EU states might default on loans secured through individual government bonds.
The EU and International Monetary Fund set up a eurozone safety net fund, worth an estimated 750 billion euros, in May. That system was due to expire in mid-2013.
Author: Mark Hallam, Richard Connor (AP, AFP, dpa, Reuters)
Editor: Catherine Bolsover