Cameron battles treaty change

British prime minister David Cameron has threatened to obstruct a Franco-German drive for swift change to the European Union's treaty intended to help save the euro.

German chancellor Angela Merkel called earlier for rapid but limited treaty change to remedy what she sees as the root causes of Europe's raging sovereign debt crisis, warning that Europeans faced a "marathon" to regain lost credibility.

However, after talks with French president Nicolas Sarkozy in Paris, Mr Cameron said he was not convinced treaty change was needed to reinforce the single currency zone, which Britain has refused to join.

He said said euro zone institutions such as the European Central Bank needed to "get behind the currency" to convince markets that it had the required firepower, and member states had to make their economies more competitive.

"Neither of those things require treaty change, but if there is treaty change I will make sure that we further protect and enhance Britain's interests," he told reporters. There was no immediate comment from Mr Sarkozy's office.

Mr Cameron faces pressure from Eurosceptics in his Conservative party to loosen Britain's ties with the EU and secure guarantees that any move towards fiscal union on the continent does not harm the interests of the City of London financial centre.

Mr Sarkozy tried to persuade him to allow stricter budget discipline procedures for the euro zone without insisting on returning powers over social and judicial affairs from Brussels to London or seeking a veto right over EU financial regulation.

US treasury secretary Timothy Geithner will travel to Europe next week for meetings with political leaders and bankers, it was announced this evening. Mr Geithner will meet Mr Sarkozy, Italian prime minister Mario Monti and European Central Bank president Mario Draghi during his December 6th-8th trip.

Earlier, Dr Merkel outlined a long-term approach to tighter fiscal integration in the single currency area, with tougher budget discipline. However, she dismissed quick fixes such as massive US-style money printing by the ECB or issuing joint euro zone bonds.

"Resolving the sovereign debt crisis is a process, and this process will take years," Dr Merkel told the Bundestag, vowing to defend the euro, which she said was stronger than the deutschemark.

The chancellor will travel to Paris on Monday to outline joint proposals with Mr Sarkozy for treaty changes to create coercive powers to reject national budgets and impose automatic sanctions on serial deficit sinners.

Next Friday's EU summit is seen by some as make-or-break for the euro zone after a string of half-measures agreed too late by European leaders over nearly two years have failed to stop bond market contagion spreading from Greece to Ireland, Portugal and now Italy and Spain.

Sources close to Dr Merkel said she was willing to see the ECB step up buying of troubled euro zone countries' bonds, alongside targeted use of the EU's rescue fund, as a bridging measure until budget controls took hold, but she did not see it as a lasting solution.

Her speech set the agenda for a week of intense diplomacy to try to frame a new political deal to restore market confidence and give the ECB grounds to act more decisively to defend the euro and support teetering banks.

World stocks and European bonds continued to gain on hopes that euro zone leaders may be moving closer to a comprehensive solution to the debt crisis.

But in a sign that business leaders are beginning to doubt whether the currency will survive, the chief executive of Austrian energy group OMV said dozens of top European executives were working on post-euro contingency plans.

"I was recently in Paris with some other representatives of large companies and we discussed this question," Gerhard Roiss told reporters today when asked if he had plans for a euro breakup. About half the 45 firms present had confirmed they were

working on such scenarios.

ECB president Mario Draghi sent a crucial signal to markets yesterday, opening the door to more aggressive action to help fight the euro zone's sovereign debt and banking crisis if governments adopted a new "fiscal compact".

Mr Sarkozy embraced German calls for a new treaty tightening fiscal discipline in a policy speech in Toulon yesterday, but in contrast to Dr Merkel, he made no mention of greater powers for the European Commission and European Court of Justice.

Instead, the French leader, struggling to win re-election next May, called for an "intergovernmental" Europe in which the presidents and prime ministers of euro zone countries would be the ultimate arbiters over national budgets.

His socialist opponents denounced him for advocating an "austerity treaty" dictated by Germany. Dr Merkel went out of her way to rebut such accusations, telling the Bundestag it was "misleading" to suggest Germans were trying to dominate Europe.

The president of the European Parliament, Jerzy Buzek of Poland, warned that treaty change could be "dangerous" because Europe's citizens were unlikely to warm to the idea in the near future.

On the markets, German 10-year Bunds outperformed safe-haven US Treasuries and British gilts as investors saw prospects of an EU summit deal and ECB action to ease funding for cash-starved banks and to counter a looming recession in Europe.

Italy's 10-year bond yield was down to 6.65 per cent, well below the danger levels close to 8 per cent they hit last week, which analysts said could make it impossible for Rome to refinance its debt next year. Spain's 10-year borrowing cost tumbled to 5.68 per cent.

Reuters