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Markets had European debt drama 'baked in'

European leaders gather in Brussels to discuss closer fiscal union and try to save the euro, but EU lawmakers are divided on the way forward.

Stacey Vanek Smith: EU leaders have been in an emergency meeting in Brussels today trying to get the 27 EU member states to agree to a plan to bolster the euro and rescue the eurozone economy. Most countries did reach an agreement, including all the countries that use the euro. But the U.K. did not sign on.

Andrew Walker is the economics correspondent for the BBC. He joins us live now from Brussels. Good morning, Andrew.

Andrew Walker: Good morning.

Smith: Andrew, describe this deal for us if you will.

Walker: There is a certain amount, by way of trying to find extra resources to provide financial help to eurozone governments, including suggestions of lending a couple of hundred billion euros -- $270 billion dollars -- to the IMF. But really, the core of it is an arrangement for more effective discipline on the finances of eurozone governments. So, more automatic sanctions for countries that break the rules, new limits on the amount they can borrow, and a requirement that they have domestic laws that enforce the kind of limits on borrowing. And it's going to apply to all the eurozone countries, most of the non-euro countries in the EU. The one that we know for sure is going to stand back is Britain.

Smith: Now, why is the U.K. is balking at this deal?

Walker: What the Prime Minister David Cameron had said was that he wanted to get some assurances, particularly about financial services, that he would be able to opt Britain out from new regulation of the financial services sector. And other European leaders disregarded this as unacceptable.

But you have also to say that there's a political issue -- he's got a lot of members of the conservative party who are very skeptical about Europe. They felt that anything he agreed to ought to be put to a referendum, and they were going to -- I think it's fair to say, Mr. Cameron would have regarded it as very disruptive for the government if they had to go through that kind of process against a lot of hostility from some parts of the conservative party.

Smith: And just briefly, Andrew, the markets seem pretty happy about this deal for the most part. Why is that?

Walker: Well, maybe it's partly that they got the bad news out of the way yesterday when the European Central Bank poured a bit of cold water on the idea that it might start intervening more actively and I guess they've had time to reflect on that and turn things around a little bit.

But I have to say also that there 's been a big mix in the bond market. There has been a bit of an increase in the yield on Spanish and Italian government debt, a sign that markets are not entirely sure that this really is the solution they want to see.

Smith: The BBC's Andrew Walker. Thank you, Andrew.

Walker: My pleasure.

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