EU Summit Agrees On Finance Pact

• January 31st, 2012
• Posted by EUEditor

European leaders this week settled agreement on a new treaty that will create a closer financial union, and approved a permanent fund for supporting EU member governments under pressure from debt.

NEW EU TREATY ON FINANCE

The gathering at Brussels was one of a series since the financial crisis of 2008, which have step-by-step consolidated a joint response to financial or monetary crisis.

The new Treaty on Stability, Coordination and Governance (SCG) is to come into effect once approved by parliament in at least 12 of the 16 countries in the Eurozone – those that are already using the Euro currency.

The pact will be made law in each of the signatory countries, and will be managed and enforced across the European institutions, including the European Court of Justice, with the possibility of heavy financial penalties on governments for non-compliance. (Money from fines would go to the stability fund).

Under the agreement national deficits will be rigidly controlled, targeted at 0.5% of Gross Domestic Product.

It follows concerted work by the executive European C omission and government leaders, to cement terms for surveillance of movements in global finances, and for closer, faster, more effective and binding responses.

25 IN, 2 STAY OUT

In Brussels on Monday, 25 of the 27 EU countries agreed to the new pact, plainly enough a further extension of the role and powers of the European Union as an extra-national tier of government.

The British government “reserved its position”, staying out, as foreshadowed last December (See EUAustralia Online, “Europe debt and 2012, 27.1.11), but this time saying it would not oppose the implementation of the terms of the agreement through the EU institutions.

With the Czech Republic also saying it would not sign, the situation added fuel to the notion of a mixed or multi-track model for the future of the European Union.

GREECE

The heads of government rejected a proposal for the appointment of a commissioner for Greece, to supervise that country’s state budgets, especially on lending and tax.

Greece, on the eve of the summit, had finalised a “loan swaps” agreement with private creditors providing the vast majority of its loan capital, in effect for rescheduling with substantial cuts, up to 40%.

Greek officials estimated the settlement would take them “back from the brink” of a disorderly default, return the national finances to manageable deficit ratios within the decade, and in the meantime place it on “solid ground”.

Greece, at the centre of the crisis over sovereign debt in Europe, has been supported by the creation  of massive guarantee funds,  to give it access to urgently needed credit; not without severe reductions in government services and employment, generating hardship and disorder in the community.

The European summit this week confirmed that the general stand-by fund for member governments, the European Stability Mechanism (ESM) would commence operations this year as planned, and they would study any need for expanding it.