EU States to Send IMF $267 Billion in New Crisis Fight

European leaders added 200 billion euros ($267 billion) to their crisis-fighting warchest and tightened anti-deficit rules, seeking to lure theEuropean Central Bank into stepping up its rescue operations. In an accord hailed by ECB President Mario Draghi, the leaders outlined a “fiscal compact” to prevent future debt runups, accelerated the start of a planned 500 billion-euro rescue fund and dropped bondholder loss-sharing provisions. The euro weakened and bonds from Italy and Spain fell amid concern the measures failed to address investors’ concerns.

“It’s a very good outcome for euro-area members and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro-area countries,” Draghi told reporters after all-night negotiations ended in Brussels at about 5:00 a.m. today. European leaders navigated a labyrinth of political, legal and economic constraints during the meeting amid unrelenting pressure from financial markets to craft a new approach to fighting the crisis, which now threatens to engulf Italy and Spain. At the same time, the leaders ventured into untested legal territory by plotting to anchor the tougher budget rules in a separate euro-area treaty after Britain balked at amending the pact covering all 27 European Union countries.

In a clash that may reshape the European balance of power, the euro users opted to enshrine the rules in a new treaty that leaves out the U.K. instead of going the more traditional route of amending EU treaties that date back to the 1950s. Hungary, Sweden and the Czech Republic, three other non-euro countries, will decide later whether to join the separate treaty. The trigger was the refusal by U.K. Prime Minister David Cameron to back a 27-nation treaty without ironclad guarantees of a British veto right over future financial regulations. Cameron called them a threat to London’s standing as Europe’s leading financial center. “Our British friends made unacceptable demands,” French President Nicolas Sarkozy said. “They wanted opt-outs on financial regulation. Since we consider it was lack of regulation that caused the crisis, that was a demand that we couldn’t meet.”

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