Why Germany wants a European treaty revision

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Germany's demand for a rewrite of the European Union treaty aims to tighten up wording to provide a watertight legal framework for rushing to the rescue of EU states in financial distress.

"We're not asking for a terrible total overhaul. It's a question of two phrases," said a government source in response to growing fears across Europe of a repeat episode of the stuttering 10-year process penning the Lisbon treaty, that came into force last December.

Chancellor Angela Merkel says the "two phrases" are indispensable to stop Germany's unbending constitutional court from interfering in any future attempt to rescue a financially-troubled EU nation.

The court's judges are still examining the case of funds sent to help Greece last spring.

Moves to set up a permanent EU rescue fund for countries in trouble, as agreed between Merkel and French President Nicolas Sarkozy, could trigger a flow of endless judicial quarrels in Germany unless the Lisbon treaty is modified to the satisfaction of the court.

The treaty's article 125, known as the "no bail-out" clause, bans flying to the rescue of another member state.

It says that "the union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any member state."

But Berlin's call for a rewrite of the EU rule-book is also about economics.

Europe's economic powerhouse, which only very reluctantly agreed to bail out Greece, is concerned that a permanent fund could lack strict supervision and be left under the loose control of member states.

Merkel wants to introduce a new procedure for states to embark on a sort of orderly insolvency, reducing the burden on national taxpayers and requiring much greater involvement from private banks.

Where the private sector has invested in government bonds, it should suffer a loss in such circumstances -- even if Berlin is careful to avoid using language that conjures up images of national bankruptcy.

Germany argues its revisions can be tacked-on at the point when the treaty is necessarily adapted to incorporate the EU's 28th state, Croatia, between now and 2012.

© 2010 AFP

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