The race to save the euro

Amending EU treaties usually takes years. To "save" the euro – and to prevent the world from tipping into deep recession – European leaders have given themselves five days. Or perhaps four months. 

France and German yesterday proposed the outline of treaty changes to be agreed by March to strengthen the architecture of the eurozone. If the EU summit on Thursday and Friday fails to reach broad agreement, the optimistic calm which has possessed global markets in recent days could give way to gadarene panic. 

France’s triple-A debt rating would almost certainly fall. This would trigger a collapse of stock markets. The yields, or interest rates, on eurozone sovereign debt bonds would surge to unsustainable levels, not just for Italy or Spain but for France or even Germany. Leading banks, in continental Europe, but also in Britain and the US, which own large amounts of eurozone sovereign debt, could be paralysed or even toppled.

To avoid this catastrophic chain-reaction, a Franco-German agreement this week on some form of fiscal union for the bloc was indispensable. But not sufficient. 

The plan emerging from the Sarkozy-Merkel talks yesterday has to be approved by 25 other countries in Brussels at the end of the week. National sensitivities are such that the French and German leaders were reluctant even to use the word "plan" yesterday. They preferred to talk of "ideas" or a "letter". 

One crucial, undecided area is how the Franco-German ideas will be written into European law. Some hard-line countries, such as Finland, believe, like Chancellor Merkel, that new fiscal rules for the euro should be legally enforceable and engraved in the EU treaty itself.  

Ireland and the Netherlands are desperate to avoid substantial treaty changes, which would have to be agreed not only by their parliaments but by national referenda. Quite apart from the delay, there would be no guarantee that either the Dutch or Irish electorate would vote "yes". The uncertainty would invite months of market vacillation and prolong the deep chill which has settled on European economies, including Britain. 

France is pushing for a separate "inter-governmental" agreement, either between the 27, or among the eurozone 17 - or a protocol to the existing treaty. A protocol would avoid the referendum minefield.