The European Union Summit to be held on Thursday and Friday is considered one of the most important in the history of the union. Europe is trying desperately to avoid a crisis like the one in 2007-2008. BBC News answered some questions about the summit and its importance. German Chancellor Angela Merkel believes that the only method to avoid a financial crisis in the future is the introduction of strict budgetary rules in the European treaties. Thus, there will be a mechanism to penalize countries that exceed the deficit target.
Merkel wants the other euro area countries to copy Germany’s budgetary discipline in order to control the public debt. French President Nicolas Sarkozy supports the same idea, but there are no concrete details on the changes to be made to the European treaties. Germany and Spain have such rules of fiscal discipline in the Constitution and there is intention that this measure be extended to the whole euro area.
At stake is the role of the European Central Bank. Many politicians and analysts believe that the ECB should start to buy bonds at a much larger scale. They say that such liquidity will be provided as required and would reduce the risk of default and contagion. A change in the European treaties could turn this idea into reality.
However, BBC News writes that the European Council President Herman Van Rompuy could propose to the summit a method of introducing more stringent fiscal rules without having to change the European treaties.
