European leaders will amend the European Union (EU) treaty this week to accommodate the creation of a permanent European Stability Mechanism (ESM) that will begin in 2013.
According to a Reuters report, the summit gathering decided in favor of inserting two sentences into the EU treaty that will allow the new ESM. It will not only present the possibility of investors absorbing some losses in case of a sovereign debt restructuring but will also put pressure on governments to focus on sound fiscal policy and hold off another debt crisis.
The ESM will most likely offer support to nations with liquidity problems through a larger fund than that which is currently available. However, France and Germany insisted on the treaty amendment to forestall any declarations by the German courts that such a mechanism is not unconstitutional.