The EU summit draws contradictory feelings

The summit of European leaders in Brussels, scheduled to take place between December 8th and December 9th, whose main topic is the French-German proposal of a fiscal union intended to set tighter rules for the national budgets, is causes contrasting reactions among the EU member states, as well as among foreign actors.

The French and the Americans are acting optimistic. On Tuesday night, US treasury secretary Timothy Geithner, expressed his support for the French-German plan to tackle the crisis, after the common conference of Nicolas Sarkozy and Angela Merkel. This support also came as a ratings firm Standard & Poor's announced this week that it would place on watch with a negative outlook the long term credit ratings of 15 Eurozone member countries.

French Finance minister, Francois Baroin, said that France's position was unyielding, and that it would not intend to leave the negotiation table without achieving a strong agreement.

"Neither Nicolas Sarkozy, nor Angela Merkel will leave the negotiations table for this summit until a strong agreement is met", said Baroin.

On the other hand, Berlin is pessimistic about the summit and its possible achievements, because some governments still don't understand the gravity of the situation, thus preventing such an agreement.

"Judging on several conversations which took place over the past few days, that many of the protagonists have not yet realized how serious the situation is", a German official said for Reuters, under the protection of anonymousness.

On the other hand, Great Britain, through Prime Minister David Cameron, said that, even though it realizes the importance of saving the unified currency, it will not sign a new treaty, and it will use its right to veto against any plan that would not defend British interests.

British minister of Justice, Ken Clarke, said that, even though he would agree to fiscal regulations emanating from Brussels, Great Britain would reject a European fee on financial transactions.

"In my opinion, we will not renegotiate any transfer of power", Clarke added, and he mentioned that in the event of a transfer of power, it would never be returned to the member states.

• The surprise of the summit: The financial "bazooka"

According to negotiators, the summit will also see the presentation of a higher financial "bazooka", which would include the running in parallel of two separate rescue funds and the earning of a more consistent support for the IMF.

This system would be part of carefully built package, which, EU leaders hope, would persuade the financial markets, just two months after a similar summit failed to convince bond investors that Europe can keep the sovereign debt crisis in check. The rescue system would be introduced together with proposals to rewrite the EU treaties with tighter budget rules for the Euro.

According to high European officials, the negotiators are considering allowing the current bailout fund, with a resource of 440 billion Euros, together with a new fund of 500 billion Euros, which would come into being in mid-2012, thus effectively doubling the resources of the fund available for the rescue of the block.

Though an anonymous official, Germany rejected the proposals to merge the current and the future bailout fund, as the government of chancellor Angela Merkel said that a division would prevent the reaching of an agreement on a strategy for the sovereign debt crisis between the 27 members of the Union.

Germany will oppose any attempt to change the already approved course, where the permanent European Stability Mechanism will take over the functions of the current fund at a scheduled moment, according to a German official, quoted by Bloomberg, who declined to disclose their name.

• Outside reactions

Despite the optimism about the possible outcomes of the summit, central bankers of the Eurozone are looking towards the possibility of a shock of the Eurozone, which would result in its partial dismantling, and in such a scenario, their priority would be to preserve the survivors of the system.

The European Central Bank is pressing governments to adopt harsher fiscal rules and said that it was ready to take more decisive measures to fight against the sovereign debt crisis, if politicians can reach an agreement on tighter budget controls.

However, in spite of the summit, a poll by Reuters among economists indicate a high likelihood of France's sovereign rating being downgraded, from AAA over the next three months, with the only unknown being the amplitude of the downgrade, the only unknown being if it were downgraded by one or two levels.

"If you apply Standard and Poor's methodology based on quantitative factors, France should already have a AA rating, as should the U.S. and Britain," said Jean-Cristophe Caffet, economist at investment bank Natixis.