Seven Days in Europe

Eurozone members have agreed to a tax and budget pact to tackle the debt crisis. But a German and French attempt to get all 27 EU states to back changes to the union’s treaties was dropped after objections from the UK. Britain parted ways with the rest of Europe early on Friday morning when David Cameron wielded his veto to block Germany’s drive to reopen the Lisbon treaty in an attempt to rescue the single currency. The prime minister’s unexpected move was seen as a watershed in Britain’s fractious membership of the EU. Nick Clegg defended the use of the UK veto to protect the national interest at the EU summit, but said he regretted the breakdown of the talks and insisted that the coalition Government was “united” on Mr Cameron’s demands for safeguards to protect British interests.

Eurozone members and others will now adopt an accord with penalties for breaking deficit rules. The new tougher rules on spending and budgets will now be backed not by an EU treaty but by a fiscal compact between governments. The main measures agreed to as part of the new agreement include a cap of 0.5% of GDP on countries’ annual structural deficits, “automatic consequences” for countries whose public deficit exceeds 3% of GDP, the tighter rules to be enshrined in countries’ constitutions and the Eurozone and other EU countries to provide up to 200bn euros to the IMF to help debt-stricken eurozone members

Credit rating agency Moody’s has downgraded France’s three big banks due to their difficulty borrowing money. The agency cut Credit Agricole and BNP Paribas from Aa2 to Aa3, and Societe Generale from Aa3 to A1. The move follows a previous rating cut by Moody’s for Credit Agricole and Societe Generale in September.

Croatia has signed a treaty to make it the 28th member of the European Union from mid-2013, becoming the EU’s second ex-Yugoslav member after Slovenia. EU Council President Herman Van Rompuy welcomed the “historic” treaty signed at the EU summit in Brussels after seven years of tortuous negotiations. Territorial disputes with Slovenia and demands for the arrest of war crimes suspects had dogged the bid. Serbia, meanwhile, is unlikely to get official candidate status until March.

Italy’s new prime minister, Mario Monti, has unveiled his “Save Italy” decree: a package of fiscal adjustments worth €30 billion ($40 billion) over three years. Susanna Camusso, leader of the CGIL, the biggest trade-union federation, retorted that it risked “saving the country and finishing off the population”. But while the unions may be unhappy with the proposals, they sent yields on Italian bonds, which had reached worrying levels, plunging.

In more positive news, Italian police have arrested the notorious chief of a Naples mafia clan, Michele Zagaria, who has been on the run for 16 years. Police said they found him after digging into a secret bunker in his hometown of Casapesenna near Naples. The head of the powerful Casalesi clan has been sentenced to multiple life sentences in absentia. The Casalesi clan has been involved in drug trafficking and corruption in the construction industry. Bomb disposal experts in the German city of Koblenz have successfully defused two bombs from World War II found in the riverbed of the Rhine.

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