Leaders of 25 European Union governments agreed on what some billed as a historic pact to move to closer fiscal union, and signed off on the details of a permanent bailout fund for the eurozone.
The fiscal pact agreed upon Monday is a German-sponsored treaty among the 17 eurozone nations and eight other EU countries that imposes tighter budget discipline on euro members and is aimed at preventing a repeat of the Greek debt disaster. Britain and the Czech Republic are the only two EU countries not to join. "Considering the time frame, this was a real masterpiece", German Chancellor Angela Merkel said. The pact was first mooted in December.
While the euro members share a central bank and monetary policy, absence of strong budget coordination has been one of the weaknesses that led to the crisis. The leaders agreed that the European Court of Justice will be empowered to impose fines on euro countries running excessive deficits. Fines will be capped at 0.1 per cent of gross domestic product. For Italy, for example, that could mean fines as high as $2 billion.
It will require governments to keep their budget deficits to an average of 0.5 per cent of GDP over the economic cycle—and to reduce their total government debt towards 60 per cent of GDP over time. The EU has long-standing rules that are supposed to limit budget deficits in any year to 3 per cent of GDP, and limiting government debt to 60 per cent of GDP, but they have never been enforced.
While the leaders were expected to endorse a treaty creating the €500 billion permanent bailout fund, known as the European Stability Mechanism, expected to come into operation at midyear, officials said a proposal to boost the bailout resources would be delayed until the leaders' next scheduled summit on March 1. Germany has been resisting a proposal that would lift the €500 billion cap on the combined total resources of the new fund and the temporary fund. That would provide a total commitment of about €750 billion.
Full article
© Wall Street Journal
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article