It’s time Europe’s leaders woke up to the fact that the currency is overvalued and its debts unsustainable.
After tough all-night bargaining, European leaders appeared to salvage what had seemed to be a summit teetering toward failure by agreeing to funnel money directly to struggling banks, and in the longer term to form a tighter union.
The agreements early on Friday at a European Union summit in Brussels suggested Germany had yielded a bit on its insistence on forcing tough reforms in exchange for rescue money. That was a victory for Italy and Spain, who have argued they have done a lot to clean up their economies but are facing rising borrowing costs.
German Chancellor Angela Merkel said after the meetings broke up soon before dawn that she was “very satisfied that we took good decisions on growth.”
The bank decision was aimed at helping Spain, which sought a €100bn ($126bn) rescue to help its troubled banks. European Council President Herman Van Rompuy called it a “breakthrough that banks can be recapitalized directly.”
Van Rompuy said leaders of the 17-nation eurozone also agreed to a joint banking supervisory body. And he said the leaders of the full 27-member European Union agreed to a general long-term plan for a tighter budgetary and political union.
Al Jazeera’s Nick Spicer explains the divisions behind the eurozone summit
The agreement meant that countries could apply for bailouts that would not come with the stringent conditions that have accompanied previous EU bailouts – a recognition, said Italian Premier Mario Monti, who pushed for the deal, of the work such countries were already doing in reforming their budgets.
EU leaders agreed on Thursday night to devote €120bn ($151bn) in stimulus to encourage growth and create jobs. France had pushed for the growth package, arguing that austerity measures imposed to stem Europe’s debt crisis were stifling growth and making it worse.
German lawmakers are expected to approve two key tools for battling Europe’s debt crisis on Friday after weeks of wrangling to ensure Merkel secures broad backing for the measures.
Merkel is scheduled to dash back from Brussels to address German MPs before they vote on the fiscal pact and permanent bailout fund.
Her speech to the Bundestag lower house of parliament, which is to begin sitting from 1500 GMT, will be followed by the 620 members voting on the pact which commits Germany and its partners to more budgetary discipline.
Al Jazeera’s Nick Spicer, reporting from Brussels, said that the divide between Merkel and other EU leaders was, in some part, aimed at appeasing their own national audiences.
“It is a requirement for Merkel and [Italian Prime Minister Mario] Monti to show their domestic electorates that there is a disagreement here,” he said.
“One reason why Angela Merkel needs to leave to Berlin tomorrow to get a three-fifths majority in the Bundestag, is that she needs to prove to the parliamentarians that she has fought her corner.
“Monti, equally, needs to prove that he has fought his corner in Brussels, if he is to continue getting support for painful reforms that he is bringing about. So we do need to take with a small grain of salt what the European leaders are saying here in Brussels, but that is not at all to minimise the challenges that they face.”
German lawmakers will also be asked to approve the creation of the €500bn ($623bn) European Stability Mechanism (ESM), the permanent rescue fund which is, from next month, to take over from the European Financial Stability Fund (EFSF).
Merkel warned on Wednesday that there were no “quick” fixes to the crisis that has roiled the eurozone for more than two years and acknowledged that “yet again”, much attention would be on Germany.
Later on Friday, members of the Bundesrat upper parliamentary chamber representing Germany’s 16 regional states are to decide on the two key texts, squeezing in their votes before the summer break.
Weeks of negotiations with the main opposition parties have allowed Merkel to count on their support, and thus for Germany to send a strong pro-Europe message to its partners.
The fiscal pact, of which Merkel was the main architect, entails changes to the German constitution and thus requires approval by a two-thirds majority of lawmakers in both chambers.
Signed by 25 of the European Union’s 27 member states, the fiscal pact aims to enforce stricter budgetary rules and prevent excessive public deficits that touched off the eurozone turmoil.
The pact would take effect once 12 EU countries have ratified it, but so far that has occurred in just a handful of nations.
To obtain backing in Germany, Merkel has had to accept demands by the main opposition Social Democratic Party and Greens for growth measures, and secure the support of leaders in German states.