EU nations to create a financial shield for future debt crisis

The proposed fund is part of a "crisis prevention mechanism" which gives the European Commission, the executive arm of the EU, power to scrutinise the national budgets of member nations. It will also be able to impose heavy fines if they repeatedly violate the limits on budgetary deficits and debts set by the EU’s Growth and Stability Pact.

But, at a summit in Brussels yesterday, the heads of state and government of the 27 EU nations rejected a proposal by Germany and France to scrap the voting rights of member nations endangering the stability of the euro by breaking the rules.

The permanent financial shield for the 16 euro zone nations will replace the present 750 billion-euro (nearly a trillion dollar) rescue fund for the euro zone nations, which expires in 2013.

It was established by the euro zone nations in June with the support of the International Monetary Fund (IMF) to protect other heavily indebted euro zone nations such as Spain, Portugal and Ireland from being sucked into the debt crisis. Debt-ridden Greece was rescued from bankruptcy by a separate 110 billion euro fund from the EU and the IMF.
However, at the summit, most of the EU nations vehemently opposed an opening up of the Lisbon Treaty to bigger changes, fearing long and complicated ratification process.
The European Commission President Jose Manuel Barosso said scrapping the voting rights was "unacceptable" and "it cannot be passed by a unanimous vote."

The treaty was completed after eight years of difficult negotiations and referendums and, as the last EU nation, the Czech Republic ratified it at the end of 2009.

Meanwhile, German Chancellor Angela Merkel expressed satisfaction over the outcome meeting."We have taken important decisions to ensure long-term stability of the euro," she told journalists after more than eight hours of discussions, which lasted till the early hours on Friday.

"Everybody agreed that there should be a permanent crisis prevention mechanism, everybody agreed that this must be formed by member states and for that purpose a limited change of the treaty is necessary," she said.

Germany’s proposal to involve private banks in future rescue of debt-ridden euro zone nations from bankruptcy was endorsed by its EU partners, Merkel said.