Another EU referendum looms as Merkel stands firm

 

The Government is facing the prospect of a difficult referendum after German chancellor Angela Merkel declared her determination to push for changes to the EU treaties as part of a deal to save the euro.

As talks intensify ahead of a crucial European summit next Thursday and Friday in Brussels, EU officials say the strength of Dr Merkel’s campaign to amend the treaties means other leaders will not be able to spurn her.

Taoiseach Enda Kenny has publicly opposed the need for treaty changes and that remains the Government’s official position in advance of the summit.

However, there is a realisation among senior Ministers in Dublin that Dr Merkel’s commitment to treaty change and the backing she has received from French president Nicolas Sarkozy may have made that process unstoppable.

In spite of an indirect attack by Mr Sarkozy on Ireland’s corporate tax regime on Thursday, Dublin remains adamant that the policy will not be up for discussion as part of the talks.

Senior European figures, who say a significant transfer of powers to Europe is on the cards, have been speculating for weeks that the initiative will necessitate a referendum in Ireland.

Ahead of next week’s budget, new figures from the Department of Finance show tax revenues in the first 11 months of the year were below target. The figures also suggest, however, that the general government budget deficit, crucial under Ireland’s EU-IMF bailout deal, will be smaller than anticipated only last month.

Dr Merkel wants EU leaders to agree to reopen the Lisbon Treaty at the summit with a view to finalising a negotiation next year with ratification to come in 2013.

Her campaign comes as EU leaders seek agreement in the next week on tough new measures to enforce budgetary discipline in the euro zone. In return for such measures, EU officials are increasingly convinced that the European Central Bank will take forceful action to calm the debt crisis. After weeks of turmoil, the anticipation of an aggressive new manoeuvre buoyed global stock markets and European bonds.

EU leaders remain under pressure to finalise the deal. US treasury secretary Timothy Geithner travels to Europe next week for talks with Mr Sarkozy, Italian prime minister Mario Monti and incoming Spanish prime minister Mariano Rajoy.

Dr Merkel, who has resisted any new role for the ECB, said in a speech to the Bundestag that she was not going to comment on what national central banks or the ECB did or did not do. Her stance was noticeably different to her dismissive attitude to jointly guaranteed euro bonds.

Under fire from former chancellor Helmut Schmidt for “isolating” Germany in Europe, Dr Merkel said she favoured limited treaty change to allow automatic sanctions “with no ifs or buts” for budgetary rule breaches.

If that was not possible in Brussels, “the second-best solution” was an intergovernmental deal operating outside the framework of EU law.

This puts her at odds with Mr Sarkozy, whose favoured option is for a deal in which governments police each others’ budgets .

Separately, the top European Commission official on the Irish bailout said critics of the decision not to impose losses on senior bank bondholders should recognise the benefit from the interest cut on Ireland’s rescue loans.

István Székely said the cut would yield €12 billion while moves to “burn” Anglo Irish Bank bondholders might have realised €3 billion.