Eurozone plans economic integration move

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EU leaders say they are looking at ways to narrow the economic performance gaps that threaten the eurozone's stability.

"We have to tackle the competitiveness gaps" in the 16-nation eurozone, French President Nicolas Sarkozy said.

France and Germany plan to present new proposals to address the problem. But they did not pledge new bail-out cash.

The leaders were speaking after an EU summit which saw agreement on a permanent mechanism to help any eurozone nation crippled by debts.

The UK Prime Minister, David Cameron, insisted that the new stability mechanism, planned to enter into force in 2013, "doesn't affect the UK and doesn't transfer any more powers to the European Union".

Germany's Chancellor Angela Merkel said the discussions "showed that we need more uniformity in our economic policies, and we will have to talk more about that in the coming months".

The European Council President, Herman Van Rompuy, said EU leaders "have... the political will to do whatever is required to ensure the eurozone's stability".

This year debt-laden Greece and the Irish Republic have received emergency bail-outs, disbursed jointly by the EU and International Monetary Fund.

The 27 leaders, meeting in Brussels on Thursday, agreed that in 2013 the permanent mechanism would succeed the eurozone's 750bn-euro (£637bn; $1tn) temporary bail-out fund, the European Financial Stability Facility (EFSF).

But the summit conclusions on Friday noted that "only a very limited amount has been committed from the EFSF to support the Irish programme".

Analysts say the EFSF would not be big enough to bail out Spain, if Madrid's finances deteriorated to the point where it needed a rescue.

Setting up the new stability mechanism requires a change to the EU's Lisbon Treaty.

Tough conditions

Two sentences will be added to Article 136 of the treaty - a change that Germany demanded to make any future eurozone bail-out legally watertight.

Image caption,
The German chancellor (left) does not want to pour more euros into the current EU rescue fund

The new text, quoted by Mr Van Rompuy, says: "The member states whose currency is the euro may establish a stability mechanism, to be activated if indispensable to safeguard the stability of the euro area as a whole.

"The granting of any required financial assistance under the mechanism will be made subject to strict conditionality."

The "strict conditionality" means that any eurozone country requiring such a rescue will have to act to tackle its debt or deficit.

The new mechanism will require private sector bondholders to share the cost of any debt restructuring on a case-by-case basis, Reuters news agency reports.

The summit comes amid continuing concern about stability in the eurozone, as national debts and deficits have soared above the EU's targets.

Portugal and Spain have been under financial market scrutiny since the Irish Republic was forced to take an aid package of 85bn euros (£72bn; $113bn) last month.

The European Central Bank (ECB) has been buying billions of euros of sovereign debt to ease the pressure on the countries seen as most vulnerable in the eurozone. It is to double the reserves it holds - to 10.8bn euros, from 5.8bn euros at present.