Morning papers: Eurozone waters down new treaty

European countries will be allowed to ignore new fiscal rules in difficult economic times, according to a draft of the region’s new treaty which appears to water down plans for a tough pact, reports the Daily Telegraph.

A leaked draft shows that members will have to commit to keeping their deficits below 0.5 per cent of GDP or face the European Court of Justice.

But they will also be allowed to “temporarily deviate” from the rules “in case of an usual event” or in “periods of severe economic downturn”.

Britain wins key concession over euro stability pact

Britain appears to have won a key concession from European leaders drawing up the new economic stability pact for the eurozone, reports the Independent.

The latest leaked draft of the treaty contains no reference to deeper integration of the single market as one of the objectives of those who sign up to the pact. British officials feared such a reference would lead to key decisions affecting the UK being taken outside the structures of the EU.

Hedge funds blamed as Greek debt deal falters

Confidence in financial markets lurched downwards yesterday as hedge funds held up a crucial deal to restructure Greece’s €350bn (£291bn) debt pile, reports the Independent.

The euro fell to a 16-month low against the dollar after signs that the agreement, designed to put the country’s public finances on a sustainable path, might be derailed.

Britain may have to pay billions more into IMF, says George Osborne

Chancellor George Osborne indicated on Wednesday that Britain may need to pour billions of pounds into the International Monetary Fund to give it the resources to deal with more financial crises, reports the Guardian.

Italy and Germany want transaction tax to be for whole of EU

The leaders of Italy and Germany dealt a blow to France’s hopes for a financial transaction tax yesterday, indicating they could only support it if it applied to the whole European Union and not just the eurozone, reports the Independent.

China’s collapse ‘will bring economic crisis to climax in 2012’

A looming hard landing in China will bring the financial and economic crisis of the past five years to a climax in 2012, one of the City of London’s leading analysts has warned, reports the Guardian.

Albert Edwards, head of strategy at Société Générale and one of the UK’s leading “bears”, said the next 12 months would be the “final year of pain and disappointment”.

China’s consumer inflation falls to 4.1%

Chinese inflation edged down in December, setting the stage for a continuation of cautious policy loosening to support the slowing economy, reports the Financial Times.

Warning on price of independence as Salmond tells PM to ‘butt out’

An independent Scotland will be saddled with a crippling national debt of at least £140bn, Scots are to be warned as the battle to keep the United Kingdom together gathers pace, reports the Daily Mail.