Debt crisis is shaking eurozone rules

BRUSSELS, Belgium - Europe and the euro will never be the same.

The debt crisis is forcing governments to rewrite some of the eurozone's fundamental rules. While some see the current turmoil as the slow wreckage of the common currency bloc, others say Europe will have the political resolve to keep it together and even bring it closer together.

Either way, one thing is clear: Thanks to new debt and bailout rules being negotiated among the 16 eurozone nations, Europe's monetary union will be forever altered.

On Monday and Tuesday, European finance ministers will work on details of a European Stability Mechanism. It will rearrange the eurozone's power structure to protect stronger economies such as Germany from paying for the profligacy of "peripheral" countries such as Greece or Portugal, threatening to create a two-tier Europe.

At the heart of the stability mechanism is forcing investors to take part of the losses in debt crises. Bondholders - including banks and hedge funds - were protected in the bailouts of Greece and Ireland.

The most direct consequence, however, has been that investors are asking for higher premiums on fiscally weak governments' debt. That in turn risks pulling Europe in two different directions - that of economically strong countries that will keep paying low borrowing rates and those that will pay more because of the perceived risk surrounding their debt.

Greece, Ireland, Portugal, and even Spain and Italy have to spend more money to refinance their debt, burning up cash that could otherwise have built schools, roads, and hospitals and boosted growth and jobs. No longer will they be able to borrow at interest rates close to those paid by fiscally solid Germany - as they did for years after the euro's launch in 1999.

Germany argues that the higher interest rates will push these countries to be more disciplined in their spending to regain investor confidence.

Whatever finance ministers eventually make of the new stability mechanism, the debt crisis has already called into doubt the assumptions underpinning Europe's monetary union.

Until last year, the eurozone stuck to two seemingly contradictory mantras: No government could ever default, and no country could ever be bailed out.

The no-bailout idea fell in May, when Greece received rescue loans. The no-default premise was stamped with a 2013 expiration date last Sunday, when European Union finance ministers agreed to force losses on private creditors if a country's debt pile is deemed too big to bear.