ANALYSIS: EU eyes reform to ward off another sovereign debt crisis

SarkozyMerkel, cc Flickr Pimkie, modified,

The Franco-German axis is attempting to rewrite parts of the Lisbon Treaty in an effort to avoid another Greek-style sovereign debt crisis.

The thrust of the proposed changes consists of adding a system of automatic sanctions to the Lisbon Treaty. If a country’s debt exceeds 60 percent of their GDP- a level of debt currently held by several EU countries- then economic sanctions would automatically be slapped on the offending country. The sanctions would get more and more oppressive the longer the country in question took to pull its finances out of the red. The offending country would also lose its voting rights in the European Parliament. If the Franco-German bloc manages to get these changes into the treaty it would address what has come to be seen as a fundamental instability in the euro- that is, the lack of any enforcement on budgetary restrictions within the EU.

However, getting the proposed changes into the treaty is easier said than done. The long and laborious process of negotiating the Lisbon Treaty has left many EU countries hesitant to start a new round of talks.

Der Spiegel has raised the possibility that Angela Merkel and Nicolas Sarkozy have set themselves up for a fall by revealing their plans before next week’s summit:

“Despite all of the diplomatic efforts ahead of the two-day summit, the other EU leaders have not yet agreed to the plan presented by Berlin and Paris. Luxembourg Prime Minister Jean-Claude Juncker came out firmly against the Franco-German plan on Wednesday. He said that the EU already had a mechanism for withdrawing voting rights in another area: “That is the case, when a country violates human rights,” Juncker told the German broadcaster ZDF. “Human rights violations and violations of budget rules are two very different things.”

Brian Lenihan, Ireland’s Minister of Finance, has warned that his country would oppose any changes that ‘involve a fundamental change to the character of the union itself.’

According to the Irish Times, Merkel and Sarkozy are facing down a tidal wave of opposition from within the bloc:

“The schism pits Dr Merkel and French president Nicolas Sarkozy, her key ally, against the leaders of Britain, the Netherlands, Spain, Italy, Ireland and a clutch of other countries. José Manuel Barroso, chief of the European Commission, also opposes a revision of the treaty.”

Zachary Fillingham is a contributor to

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