EU sets sights on treaty change, new safety net - Reuters

* EU leaders agree on treaty change, permanent safety net * Treaty change moves are a success for Germany

* Trichet raises concerns, long battle ahead to implement

(Adds Sarkozy, details)

By Ilona Wissenbach and Timothy Heritage

BRUSSELS, Oct 29 (Reuters) - The European Union on Friday set in motion plans to amend the EU's main treaty to create a permanent system to fight financial crises, and said a summit deal on new budget rules would strengthen the euro.

The moves, intended to head off any sovereign debt problems, face a long and potentially divisive battle before they take effect and EU sources said the head of the European Central Bank had expressed reservations about some of the proposals.

But the agreement on limited treaty change at a two-day summit in Brussels, and the endorsement of tougher budget rules [ID:nLDE69I1FB], was a victory for Germany's push for greater financial stringency following Greece's debt crisis.

"We are doing everything to ensure that there will never be a repeat of the crisis we have had," German Chancellor Angela Merkel told reporters. "One can already say that the euro will be strengthened."

She won guarded praise in the German media for a compromise that bought time to find a lasting remedy to the bloc's debt problems, offering her some respite from criticism that she had bowed too easily to French demands to water down proposals for semi-automatic sanctions on budget rule-breakers.

Any failure to reach a deal and any sign that the EU was backtracking on efforts to tighten fiscal discipline could have unsettled investors already worried by debt problems in countries such as Portugal, Greece and Ireland. [ID:nLDE69R0V7]

Leaders of the 27 EU states committed the bloc to treaty changes to create a permanent mechanism that will replace a 440-billion euro ($611 billion) emergency safety net for indebted euro zone countries when it expires in mid-2013.

Herman van Rompuy, the president of the EU Council grouping national governments, will draw up proposals to amend the Lisbon treaty in cooperation with the executive European Commission and the leaders hope to agree on the changes in December.

"The European Council has sealed a solid pact to strengthen the euro. That's one of the most important decisions that we have taken in the last months," Van Rompuy told reporters.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For analysis on mechanics of treaty change, see [ID:nLDE69Q0H2] For more on how treaty change may work, see [ID:nLDE69S0GV] For a link to all treaty change stories click [ID:nLDE69R14T] For an interactive timeline on the euro zone crisis, click on link.reuters.com/kar27p

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

*We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language or appear to be spam and review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters.

View the original article here