European Council: Towards a new fiscal contract
14.12.2011 Article by Androulla Kaminara, Head of the European Commission Representation in Cyprus.
President Barroso's objective ahead of the European Council on 8-9 December was to arrive at a genuine consensus on how we handle our public finances – to agree, in other words, on a new fiscal compact. In the view of the Commission this was necessary not only for dealing with the crisis in the short term but also in order to pave a path towards new convergences and deeper integration, always within a context of fiscal discipline.
This objective was achieved – in spite of all the negative predictions made beforehand by various prophets of doom.
The 17 Eurozone countries agreed, with not a single exception, to abide by the new, tighter rules for controlling deficits and debt – in effect, they agreed to commit themselves that they will have balanced budgets. On their side they also found 6 of the non-euro countries and it is possible that the number of the countries that sign up to this new fiscal compact will go up to 26 – if the governments of Hungary, Sweden and the Czech Republic gain the approval they felt it was necessary to ask for from their respective parliaments. The fact that the UK decided to chart a different course means that this new fiscal compact cannot be incorporated into the Treaty of the European Union – for this, we need unanimity. But, it will be enshrined in a new intergovernmental agreement that will be signed by all those who share the same position – possibly, a total of 26, that is, all Member States except the UK. And this agreement will, without a shadow of a doubt, be fully compatible with EU law.
The decisions taken by the Council on 8-9 December also have immediate ramifications.
The Eurozone members and other countries as well, agreed in principle to provide to the International Monetary Fund, additional loans of 200 billion euro. Beyond the obvious, practical importance of this extra funding this decision is significant because it allows the IMF to point to the renewed additional commitment of the Europeans and go out and seek further contributions from other countries as well.
Immediately after the Council, the so called Six-Pack of Measures on Economic Governance entered into force on Tuesday 13 December. These measures, alongside other provisions, allow for the imposition of sanctions to Member States which break fiscal discipline rules.
The Council also decided to fast-track the approval of two new Regulations which the Commission had proposed on 23 November. These Regulations will strengthen the role of the Commission in monitoring the process of putting together the national budgets.
Finally, the European Stability Mechanism, the fund that assists Member States that face difficulties in the financial markets, will be activated a year earlier than originally envisaged – in July 2012 rather than in July 2013.
Taken all together, these new rules boost fiscal discipline but also bring us closer to fiscal union – and many say that fiscal union is necessary for defending monetary union and the euro. It is also reassuring to know that at this critical moment all EU Member States, with just the one exception, have agreed to keep moving forward together.