CRUCIAL TALKS on the reform of EU budget rules are set to go down to the wire at a European summit tomorrow night as Germany faces a push to withdraw demands for rule-breakers to be deprived of their voting rights.
Berlin reiterated yesterday that chancellor Angela Merkel had no intention of pulling back her call for changes to the Lisbon Treaty, further raising the temperature after a succession of governments said they opposed such measures.
As divisions intensify, diplomats from several member states say there is little prospect of any compromise before EU leaders arrive in Brussels.
Amid concern in Government circles that the suspension of democratic voting rights would require a referendum, Taoiseach Brian Cowen is expected to oppose any move in that direction. Ireland also opposes the principle of suspending democratic voting rights.
Although many other countries have similar concerns, the Merkel administration has signalled that the chancellor is not minded to change her stance. A source familiar with the German position said Dr Merkel saw the voting rights question as being part of an integrated package of measures to confront the sovereign debt crisis.
This package also includes the creation of a permanent rescue mechanism for euro countries and the development of national insolvency procedures under which lenders to euro zone governments would face debt write-downs in a financial crisis for the first time.
European Central Bank chief Jean-Claude Trichet is opposed to insolvency measures. However, German government sources say sovereign rescues must include that option to guard against taxpayers in other member states bearing the entire burden of support for a distressed country.
French president Nicolas Sarkozy aligned himself with Dr Merkel last week but countries such as Spain, Portugal, Italy, the Netherlands and Britain are very unhappy with the Franco-German proposal on voting rights.
A large number of governments are willing, however, to contemplate the creation of a permanent safety net when the current temporary fund expires after three years.
While diplomats say this could be achieved with a minimal degree of treaty change, they believe any reworking of the Lisbon pact to facilitate the withdrawal of voting rights would be substantial.
Given the strength of opposition to this, high-level officials in the EU institutions say Dr Merkel will be under pressure to abandon the proposal altogether.
Mentioning British prime minister David Cameron in particular, officials say opposition to large-scale treaty change is so entrenched among EU leaders that they would seek significant political concessions in return for any rethink.
Diplomats say the debate turns on whether the summit explicitly commits to change the treaties, as Dr Merkel has been seeking, or simply makes an open-ended promise to examine that possibility, as many other leaders want.
German government sources say Berlin wants the summit to adopt a report on new economic rules which was agreed last week by a ministerial taskforce chaired by Herman Van Rompuy, president of the European Council.
In a letter yesterday to EU leaders, Mr Van Rompuy said the recommendations constituted a “great leap forward” in a battle to strengthen the single currency and would make EU economies “more crisis proof”.
However, Mr Trichet and some EU leaders are unhappy with the report. While the document still toughens EU procedures for imposing financial sanctions on rule-breakers, the quasi-automatic character of the sanctions was watered down at Berlin’s behest when Mr Sarkozy agreed to back Dr Merkel’s drive for treaty change.
Mr Van Rompuy in his letter also said the summit would discuss “the issues raised in the task force which require further work”, code for the divisive question of treaty change.