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Trouble looms in EU bid for tighter economic governance

Luxembourg — It took the European Union eight long years and an Olympic steeplechase of legal hurdles to revamp the treaty that governs relations across the world’s biggest trading bloc.

Now practically before the ink has dried on the Lisbon Treaty’s entry into force last December, France and Germany, the twin driving forces behind ever closer union, want it updated to tighten pan-EU economic governance.

President Nicolas Sarkozy and Chancellor Angela Merkel late on Monday tasked EU President Herman Van Rompuy, whose job only came into being with the treaty’s entry into force, with re-writing the massive document.

With multiple rejections in vexed national referendums still fresh in the memory, it threatens to re-open a Pandora’s Box of problems if Van Rompuy is to meet the 2013 deadline set for him.

Brussels was left traumatised when French and Dutch voters killed the notion of an EU constitution and the Lisbon Treaty was almost stillborn when Irish voters threw it out on a first vote.

Van Rompuy said after being handed his mandate by Sarkozy and Merkel that planned changes bringing about more restrictive cross-border rules on economic policy-making amounted to the EU’s "biggest reform" since the creation of the euro currency in 1999.

The drive to start again on fiscal, monetary and economic decision-making was deemed necessary to ensure there would never be a repeat of this year’s Greek debt crisis that threatened to bring down the euro, the EU’s defining political achievement.

But non-euro Britain immediately threw up characteristic ‘red lines’, with a government spokesperson warning that Prime Minister David Cameron "will not support anything that involves a transfer of powers from Westminster to Brussels."

While Britain ratified Lisbon without a referendum, Cameron is already planning to bring legislation before the parliament in London that would make any fresh transfer of ‘sovereignty’ to mainland Europe an issue requiring popular assent.

The deal made by EU finance ministers on economic governance, to be picked over by national leaders at a summit on 28-29 October, would give the EU power to sanction governments that blow their budgets, as well as establishing a permanent safety net for those that cannot cope.

While the new measures are for the moment aimed only at the 16 countries that use the euro, whose adoption has been ruled out by Cameron, questions remain over ‘political’ sanctions, including a drive to withdraw EU voting rights from states that repeatedly breach budget undertakings.

"If it’s only a question of hardening sanctions for eurozone nations or creating a permanent safety mechanism there, we could do that depending on how it is worded," a British diplomat said.

"But if it involves anything that makes meeting deficit targets conditional, that would mean a transfer of power which is not something we could do," he added, referring for example to plans to withhold EU funds for repeat offenders.

Under its special opt-out, Britain only has to ‘endeavour’ to keep its deficit within three percent of gross domestic product.

While Olli Rehn, the European Commission official responsible for drawing up ‘second-stage’ legislative proposals on sanctions applicable to all 27 states, said Tuesday these plans would take into account ‘treaty obligations’. He did not confirm when asked bluntly if he would leave Britain out of his sights.

A senior source close to Van Rompuy’s ‘task force’ on economic governance also said there was "a possibility for the UK to be hit" on voting rights at some later date.

Diplomatic efforts will centre on giving London "a clear opt-out" to "allow the change to be accepted by all 27" EU states.

Luxembourg Prime Minister Jean-Claude Juncker warned Monday that the "devil is in the detail," but the European parliament already wanted states to go much further on sanctions.

Belgian liberal leader Guy Verhofstadt set the tone for lawmakers there, warning that he was "not impressed" by Sarkozy and Merkel’s deal, and arguing for even "bolder" action.

Roddy Thomson / AFP / Expatica