- Associated Press - Thursday, December 8, 2011

BRUSSELS (AP) — The leaders of Germany and France are pushing their European counterparts to save the ambitious project of Continental unity that grew from the ashes of World War II.

At stake at the summit in Brussels, which began Thursday evening, is the future of the euro, the stability of the global financial system and the balance of power in Europe.

To persuade financial markets that Europe’s economy-crushing debt crisis is a one-time event, countries will have to give up significant powers, such as some decisions on borrowing and spending, to a central authority.

French President Nicolas Sarkozy and German Chancellor Angela Merkel face daunting challenges: the need for unanimity among 27 national leaders, if they choose to work within the EU; the burden of persuading the 17 countries that use the euro to yield some control over their national budgets; the need to do something that will inspire confidence in the financial markets.

For the summit to be declared a success, at a minimum the 27 leaders “should agree on some kind of fiscal plan in terms of governance,” said Paul de Grauwe, an economics professor and EU expert at the Catholic University of Leuven in Belgium.

And that plan must be good enough to persuade the European Central Bank to intervene in the government bond markets in a manner large enough to stop the panic there, Mr. de Grauwe said.

The European Central Bank said it currently has no plan to increase the scale of its bond interventions, which keep down the borrowing costs of weak countries such as Italy and Spain, as markets had been hoping. Stocks and the euro fell, while the borrowing rates for Italy and Spain skyrocketed.

ECB chief Mario Draghi last week hinted that if governments agree to tighter budget controls, the central bank might step up support. Analysts said his comments on Thursday served to keep pressure on politicians to reach a deal.

Mrs. Merkel and Mr. Sarkozy will bring to the EU summit a proposal to force European countries to balance their budgets and to automatically sanction rule-breakers. They want to enshrine the tougher budget oversight in a treaty, either by changing the existing EU treaty or creating a new one for the 17 eurozone nations that others could opt in to.

“Words alone are not believed anymore because too often we did not live up to our words,” Mrs. Merkel told a rally of fellow European conservatives in Marseille, France, ahead of the summit.

But huge divisions remain.

Some countries resist the idea of giving up some of their control over national budgets. Furthermore, the 10 EU countries that don’t use the euro are worried about being left out of important decision-making if eurozone countries adopt a new treaty of their own.

European Council President Herman Van Rompuy and some smaller countries that have stuck to the budget rules in the past, meanwhile, are pushing for much more intrusive powers for European institutions to essentially take over wayward states’ fiscal policies that even France and Germany are unlikely to accept.

British Prime Minister David Cameron has said he will defend his country’s interests at the summit and demand safeguards in asked to amend the EU treaty. He’s worried that new eurozone rules could endanger London’s role as a global financial center and weaken British economic links with the rest of the region.

However, arriving in Brussels, Mr. Cameron appeared to soften his stance somewhat, saying that he would support treaty change if it helped the eurozone emerge from the crisis.

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