Brussels Showdown Merkel and Sarkozy Risk Embarrassing Defeat

German Chancellor Angela Merkel and French President Nicolas Sarkozy have ruffled feathers ahead of this week's EU summit by hashing out a deal on their plans for reforming the Stability Pact. The proposal to remove voting rights has met with fierce opposition across Europe -- the stage is set for open confrontation.
Germany and France face stiff resistance in Brussels to euro stability plans.

Germany and France face stiff resistance in Brussels to euro stability plans.

Foto: Julian Stratenschulte/ dpa

German Chancellor Angela Merkel has raised the stakes ahead of this week's European Union summit. She and French President Nicolas Sarkozy want countries that break the strict budget deficit rules to be punished by having their voting rights suspended. However, this would require a change to the Lisbon Treaty -- something that has met with fierce resistance within the 27-member bloc. The stage is set for confrontation this Thursday in Brussels and it is far from clear if Merkel  and Sarkozy will prevail.

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."

Martin Schulz, a member of Germany's center-left Social Democrats and head of the Socialist group in the European Parliament, expects the chancellor to fail to push through her agenda at the summit. "Merkel has simply not reflected enough," he told the Hannoversche Allgemeine Zeitung newspaper. "I doubt that countries like Germany and France would subject themselves to such a suspension of voting rights it they had high deficits," he said.

On Wednesday Merkel defended the pact that she made with Sarkozy ahead of the summit in a speech to the Bundestag, Germany's parliament. That so-called "Deuville Deal" included plans to make bond holders, such as banks and hedge funds, share some of the costs of risky lending by sharing responsibility for coming to the rescue of EU states on the brink of insolvency. Another issue is whether states that break the deficit rules are automatically punished by the European Commission, the EU's executive, or whether the agreement of the European Council of ministers would be required.

Germany has yielded to France's desire for more leniency on this issue in exchange for Paris backing its plans for a permanent crisis resolution mechanism. An emergency safety net was established to come to the rescue of Greece and other floundering EU member states, but this runs out  in 2013. Merkel has come under public pressure back home not to simply extend the fund, to which Germany is the largest contributor, with taxpayers balking at having to pay to cover the excesses of less fiscally prudent nations.

'No Mutiny'

Although Juncker rejects some of the proposals from Berlin and Paris, he agrees with Merkel's suggestion that the Lisbon Treaty needs to be altered to include a permanent crisis mechanism. "I am of the opinion that we have to consider a small change to the treaty in order to achieve that. There is no fundamental dissent on that," Juncker said.

Manfred Weber, deputy floor leader of the European People's Party, the conservative Christian Democratic group in the European Parliament, backs Merkel's proposal to have private creditors involved in the rescue packages. Weber, a member of the Christian Social Union, the Bavarian sister party to Merkel's Christian Democratic Union (CDU), told the Tagesspiegel newspaper that the priority, however, is making sure that states do not face insolvency in the first place. He said that the Deauville Deal had given the impression that German had retreated "on the issue of how the euro can be kept stable." Weber wants to see the EU executive given greater powers. "In order to ensure budget discipline in the EU member states we need a strong European Commission, one that can automatically impose sanctions without any political influence."

Foreign Minister Guido Westerwelle has pronounced himself optimistic that the strengthening of the EU Stability Pact can be achieved. "Following numerous discussions with my European counterparts I am certain that we can reach a solution that will strengthen Europe, protect the euro and do justice to the legitimate interests of the taxpayers," he told the Bild newspaper. "We need tough rules which ensure that in future the imposition of sanctions is as devoid of political influence as possible."

As for the criticism of the calls from France and Germany for a change to the Lisbon Treaty, Westerwelle said that there was no "mutiny" within the EU, because "France and Germany are not the captains of Europe, but rather part of a community of states on equal terms."

smd -- with wire reports