(Image source: G-8.de)

BY MIKKEL NOEL LANZKY

Will the European Union need a new treaty to effectively solve the Euro crisis? German Chancellor Angela Merkel and French President Nicolas Sarkozy have said so for a while, and now the two have put forth a concrete proposal to other European leaders to be debated at a summit at the end of this week.

Euronews has the story.

REPORTER: “Though they hoped for agreement from all 27 members, they’d happily go ahead with fewer.”
SARKOZY: ‘We want a new treaty to make all the people of Europe, EU, and the Euro zone realize that things cannot continue the same way as they have been until now.’”

Many believe the Euro zone’s troubles stem from a disconnect between monetary and fiscal policy. The solution from Merkel and Sarkozy will commit the Euro countries to a more common financial policy and budgetary discipline so future debt crises can be avoided. The Washington Post reports.

“Germany and France have proposed rules that would limit countries’ deficits to 3 percent of gross domestic product and their overall debt to 60 percent of GDP.”

A new treaty will take time and face difficulties in passing. But a leaked memo from European Union President Herman van Rompuy outlines a -- let’s call it “treaty-lite” -- to implement tougher budget rules without the complications of a new treaty for countries that use the euro. Financial Times writes...

“Under [van Rompuy’s] plans countries that use the single currency would have to enshrine debt and deficit limits in their national constitutions – rules that would be subject to review by the European Court of Justice.”

After the plan surfaced, Chancellor Merkel insisted on a full-blown treaty change. While this option may have a longer timeline, it could prove the wisest, as the market will likely punish any solution not believed to stabilize the Euro zone long-term. As Time Magazine notes:

“It has become imperative for the entire European Union to get on with the process if the euro is to be saved. ... The current emergency is unlikely to abate until the euro is either dead or its leading members save it by betting the entire collective farm.”

While the United States is anxious to see the Euro crises solved, it also wants an effective remedy that will prevent similar crises from happening in the future. According to CNN, Treasury Secretary Timothy Geithner supported the plan for a new treaty after meeting with the French finance minister:

“We're encouraged by the progress they're making, not just to put in place economic reforms across Europe to create the conditions for stronger growth in the future but to try to build a stronger architecture for fiscal union, a fiscal compact.”

Monday the ratings agency Standard & Poor’s added to the urgency by announcing it is considering downgrading its credit rating of the Euro zone as a whole, including Germany, if a solution is not reached soon.

Transcript by Newsy.