THE DEBATE about the decisions reached by the European summit in the early hours of Friday and of their implications is set to go on for months. Nobody, not even the EU leaders who bashed out the deal, is in a position to safely say that the eurozone debt crisis was over and that calm would return to the markets after the summit’s show of decisiveness, if not unity. This was a deal reached by 26 of the member-states, Britain, citing its national interests, opting out and raising questions about its future within the Union.
The new tax and budget pact, known as the ‘fiscal compact’, envisages much tighter budget rules and tough penalties for member states that ignore them. The 17 members of the eurozone voiced their agreement to the deal, while the remaining nine have said they would sign up after consultations with their parliaments. Whether all national parliaments would give the go-ahead remains to be seen. Ireland would need to put the new pact to a referendum, as its constitution demands, with no guarantee that it would be approved by the people.
The British veto of the French and German attempt to change Union treaties could be seen as a blessing in one sense, as it would speed up the procedure for implementing the fiscal compact, regarded as the ticket to stability. Changing the treaties could have taken as long as two years and the changes would then have to be approved by national parliaments. The alternative, imposed on the summit by Britain’s stance, will be a speedier solution, as it will be backed by a inter-government treaty and would be in force as early as March.
However, without a change in treaties, it is unclear how the fiscal compact would be implemented. The initial plan was to use the European Court of Justice and the Commission to monitor adherence to the fiscal compact and impose sanctions on states that broke the rules, but this is looking a bit more difficult without the agreement of the opt-out states. Several analysts predicted political and legal disputes over the implementation of the inter-governmental treaty, even though this is not the most immediate of worries.
The most pressing question is whether the European Central Bank will now consider that the Union has done enough to allow the ECB to protect the states having difficulty paying their debts. It is still banned by treaty from acting as a lender of last resort and engaging in the unlimited buying of bonds, but more ECB intervention would bring more market stability, which is the ultimate objective. The fiscal compact could have the desired effect on the markets, if it is perceived to be the first step towards the issuing of Eurobonds. This is France’s aim and the reason why it supported Germany’s ‘debt-brake’.
But will the new ‘debt-brake’ work, considering it was also included in the Maastricht Treaty but was ignored time and again by member countries? The new pact envisages the tax and budget rules being incorporated in national constitutions, which would make it more difficult for governments to overspend, particularly as budget plans would also be subject to the approval of Brussels technocrats. This transfer of power to Brussels is indeed a surrender of national sovereignty, but also a step towards closer integration. Whether it would be a good or bad thing remains to be seen.
For little Cyprus with its irresponsibly profligate political establishment and militant public sector unions, fiscal discipline imposed by Brussels could only be a good thing, as we have proved that we are incapable of exercising fiscal prudence voluntarily. Cyprus is too small to ignore the provisions of the ‘fiscal compact’, but would other member states, which consistently broke the Maastricht Treaty rules, change approach now, for fear of sanctions? Would a state that ignores the rules and overspends be able to afford the high fine imposed on it by the EU?
The most important question, however, is whether the EU, after 12 summits, has finally come up with a solution to the eurozone debt crisis? None of the previous summits convinced the markets as the leaders were divided and the solutions they came up with were temporary fixes that were not thought through properly. We can only hope that this week’s summit came up with the so-far elusive, definitive solution to the euro crisis.
