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This should restore the confidence of markets and the general public in the stability of the common currency. Chancellor Angela Merkel declared herself well satisfied with the results. "The 17 euro-zone states must regain credibility. And I believe we can and will manage to do so with the decisions we have made here today," she said in Brussels.

The structural faults of the economic and currency union which was sealed twenty years ago in the Maastricht Treaty will now be remedied little by little. At the final press conference Angela Merkel reiterated that credibility in the euro zone cannot be restored overnight, but that it will involve a longer process. If a currency union is to work properly the common organs involved must be strengthened, she said.

The key resolutions

The heads of state and government agreed on the following cornerstones for a new agreement. 

• All states will introduce a legal cap on new debt levels with a view to balancing public budgets. A budget will be deemed to be balanced if the deficit does not exceed 0.5 percent of the state’s gross domestic product.
• Countries with excessively high budget deficits can be penalised automatically in future. Sanctions can only be averted if a qualified majority of the euro states so vote. A reversed qualified majority thus applies.
• Countries with excessively high debt will enter into detailed reform agreements with the European Commission.
• States failing to comply with the new terms can be taken to the European Court of Justice.

The permanent European Stability Mechanism (ESM) is to be operational in mid-2012 rather than 2013. Irrespective of the commitments of the EFSF, the ESM will have a maximum lending volume of 500 billion euros.

In terms of involving private creditors, the ESM is to take its lead from the International Monetary Fund (IMF). These are practices with which both the markets and the member states are familiar. This is one factor in confidence building.

In view of the challenges ahead, the heads of state and government will meet once a month in future. Chancellor Angela Merkel expressly praised the excellent cooperation with French President Nicolas Sarkozy and the constructive atmosphere in which the talks took place. Angela Merkel expressed her regret that the United Kingdom does not intend to sign up for the fiscal compact. It was impossible for the other states to agree to the conditions demanded by the United Kingdom, she said.

Federal Economics Minister Philipp Rösler said that the conclusions demonstrate that Europe must proceed bravely and determinedly. There can be no reversing the moves towards a stability union. He said.  

The most important regulations

The key points of the new deal are:

• A ceiling on debt anchored in law in all euro-zone states with a view to ensuring balanced public budgets and
• Automatic penalties for states breaching the agreed deficit levels. Only a qualified majority of euro-zone states would be able to prevent penalties being imposed.

The entry into force of the future European Stability Mechanism (ESM) is to be accelerated, such that it can be operational in summer 2012 rather than in 2013. The ESM will have a maximum lending volume of 500 billion euros irrespective of the commitments of the EFSF.

In terms of involving private creditors, the ESM is to take its lead from the International Monetary Fund (IMF). These are practices with which both the markets and the member states are familiar. This is one factor in building confidence.

Angela Merkel declared herself satisfied with the decisions. "Everybody in the world will see that we have learned from past mistakes."

EU accession for Croatia

In the morning of the second day of the summit the heads of state and government signed the Treaty of Accession with Croatia. President Ivo Josipovic and Prime Minister Jadranka Kosor signed the Treaty for Croatia. This means that the ratification process can now begin.

Alongside the European parliament, all 27 EU member states will have to ratify the Treaty. This process should be completed by mid-2013.

Decision on Serbia postponed

Serbia, by contrast, cannot hope to be accorded official accession candidate status before March 2012. The EU heads of state and government will be deciding this on Friday. Germany in particular was against declaring Serbia a candidate country at this time. Chancellor Angela Merkel emphasised in her government statement on 2 December 2011 that Serbia "has not yet met expectations to the degree required". Serbia will be required to normalise relations with Kosovo before it can move closer to the EU.

The draft summit declaration states that the EU Council of Ministers should report again before a final decision is made in March 2012. It should examine and confirm that Serbia can demonstrate continued credible engagement and further success in implementing an agreement with Kosovo relating to the joint management of the common border.

Serbia must also enter into an agreement on extensive regional cooperation by March. And it is to actively support NATO with respect to the KFOR mission is Kosovo and the EU with respect to the European Union Rule of Law Mission in Kosovo (EULEX).