EU Leaders Debate New Rules for Debt Crises

European Council President Herman Van Rompuy, right, speaks with Belgium's Prime Minister Yves Leterme during EU summit press conference in Brussels on 28 Oct. 2010.

European Union heads of state gather in Brussels for what many expect will be a fractious two-day summit on whether to fundamentally overhaul rules for managing debt crises.

At issue is a strong push from Germany to change a key European Union treaty to strengthen economic governance. The aim: to avoid future fiscal crises like the one triggered by Greece earlier this year and to ensure financially troubled members do not default on their debt.

Ilaria Maselli is an economic analyst at the Center for European Policy Studies in Brussels. She says the Greek crisis sent a particularly strong message to the 16 EU nations who share the euro currency.

"If you consider that Greece is only 2, 3 percent of the euro area's GDP and even if it is very small it was able to create a euro-wide crisis, the point is that precisely in the euro-system as it is now, there is no provision to react in the case of a crisis," Maselli said.

During a summit earlier this month, German Chancellor Angela Merkel called for overhauling EU finance rules. French President Nicolas Sarkozy backed the proposals. Germany and France have long been seen as the motors of Europe, driving the 27-member EU.

Herman van Rompuy, the EU's permanent president, said on Wednesday that it is critical for a new mechanism to replace a trillion-dollar emergency crisis fund set up this year. It expires in 2013.

Van Rompuy outlined recommendations by an EU task force that include better surveillance of European economies and better management of public finances to avoid future financial crises.

But Germany wants to go further and rewrite the Lisbon Treaty to include tougher fiscal rules. The pact went into effect last year only after lengthy headaches and negotiations. And that is one reason why many EU members are balking.

"The problem is when you want to open a treaty negotiation, it's like a Pandora's box. The objective is to avoid this - otherwise many, many requests will come," Maselli explained.

Regional political analysts say European leaders may find a way to include Germany's proposals without fundamentally changing the Lisbon treaty - or they may agree to a watered-down compromise.