By Svetla Dimitrova
After failing to muster the needed unanimous support for changes to the EU treaties, European leaders agreed on a fiscal pact based on an intergovernmental treaty among at least 23 of all 27 members of the bloc.
“The euro area 17 members, plus six more, will conclude an intergovernmental treaty,” European Council Herman van Rompuy said in Brussels early on Friday (December 9th), after ten hours of marathon EU summit talks that started on Thursday evening.
A statement by the eurozone leaders, announcing the deal, said that they had agreed to move towards a stronger economic union, which would imply “a new fiscal compact and strengthened economic policy co-ordination” on the one hand, and development of “stabilisation tools to face short-term challenges” on the other.
According to the statement, the general government budgets of the 17 countries using the euro as their national currency, should be “balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP”.
Participating states would have to introduce that tighter rule in their national constitutions or equivalent legislative acts, with provisions for an automatic correction mechanism to be triggered in the event of deviation. The European Court of Justice will be the institution authorised to check if countries have correctly transposed that rule in their legal systems.
The eurozone leaders also agreed that countries whose public deficit exceeds the 3% of GDP ceiling would face “automatic consequences”.
“Steps and sanctions proposed or recommended by the European Commission (EC) will be adopted unless a qualified majority of the euro area Member States is opposed,” said the statement.
“The specification of the debt criterion in terms of a numerical benchmark for debt reduction (1/20 rule) for member states with a government debt in excess of 60% needs to be enshrined in the new provisions.”
The leaders also agreed that the eurozone’s permanent rescue fund, the European Stability Mechanism (ESM), should enter into force in July 2012, a year earlier than originally planned, and that the existing European Financial Stability Facility (EFSF) will remain active until mid-2013.
“The overall ceiling of the EFSF/ESM of 500 billion euros will be reviewed in March 2012,” the statement said.
They also agreed that participating states should confirm within ten days their contributions of funds in the form of bilateral loans totalling up to 200 billion euros. The money would be provided to the IMF to help it deal with the crisis.
The statement further noted that “voting rules in the ESM will be changed to include an emergency procedure”. In cases of emergencies, when the financial and economic sustainability of the euro area is threatened, decisions will be taken by a qualified majority of 85%.
The new agreement is to be signed by March 2012. It will then be open to ratification also by EU member states outside the 17-nation euro club that wish to join.
Two countries that will surely not be part of this new pact are Britain and Hungary. After blocking plans to revise the Lisbon Treaty, British Prime Minister David Cameron made clear that he would not surrender sovereignty to save the euro. Sweden and the Czech Republic have asked for more time in order to consult their national parliaments.
Friday’s deal “basically follows the lines of the Franco-German proposal”, Josef Janning, director of studies at the Brussels-based European Policy Centre (EPC), told SETimes on Friday. “I think it is a sort of a positive surprise that it’s 17+6, which wasn’t all that clear.”
He also noted that had someone asked him before the summit, he would have expressed doubt that the 17 eurozone countries could reach an agreement.
“But there is and the euro plus countries have reinforced their commitment,” Janning added.
“But it’s not done yet. The real thing is beginning now, which is to negotiate the changes and to come up with a concept that would both meet the needs to strengthen ex past and ex ante discipline and at the same time come up with something that is still compatible enough with the larger EMU framework, which is after all a 27[-member] framework to be enlarged or transferred into the common acquis at a later point.”
According to political-military analyst Petar Shkrbina, EU countries would not allow the euro to fail. What was at hand Friday, was “a redefinition of the EU’s internal relations”, he told SETimes.
“The euro as a currency will not fall because the big countries like Germany provided much money to save the failed economies like Greece,” Shkrbina said. “If they allow the euro to disappear, in that case those countries which provided funds for saving the states on the periphery will fall themselves. All that was done today is of an economic nature.”