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Merkel pushes through EU fiscal pact

The Local · 31 Jan 2012, 07:51

Published: 31 Jan 2012 07:51 GMT+01:00

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But the announcement that 25 of 27 European Union nations had adopted the new pact on budgetary discipline was overshadowed by outrage over a German suggestion that heavily indebted Greece submit its finances to EU review.

The idea of placing the cradle of European democracy under the supervision of an EU budget tsar quickly failed to gain traction at the summit in Brussels.

"There cannot be any talk of putting any nation under wardenship. It would not be reasonable, democratic and efficient," French President Nicolas Sarkozy told a news conference.

Sarkozy said that German Chancellor Angela Merkel did not back the idea, suggesting the proposal came from others in her government.

Merkel, however, did not repudiate the controversial proposal which Greece's education minister termed "the product of a sick imagination."

"I think that in light of the discussions, which are often very emotional, it is important that we come to a conclusion" about the extent of the surveillance of Greece, she told reporters.

Greece is already essentially under supervision with European Commission, European Central Bank and International Monetary Fund auditors in Athens to ensure the government implements reforms in return for bailout loans.

Athens has been under constant pressure to implement drastic budget cuts and radical economic reforms in return for installments from a €110-billion bailout it was granted in May 2010.

Merkel noted that a second €130-billion rescue package for Greece, which European leaders hope to finalise this week, was conditioned on some form of "surveillance that we are now thinking about how to make more efficient."

Under the radical German proposal, a commissioner appointed by the 16 other eurozone finance ministers could veto budget decisions made by Athens.

"I am strongly against the idea of imposing a commissioner with that mission only to Greece. That's not acceptable," said Luxembourg Prime Minister Jean-Claude Juncker, chairman of the key group of eurozone finance ministers.

Calling the German proposal "vexing," Austrian Chancellor Werner Faymann said it "doesn't achieve anything and it goes in the wrong direction."

However, the plan drew cautious support from Swedish Prime Minister Fredrik Reinfeldt, who complained that Greek authorities "are not delivering on reforms." Dutch Prime Minister Mark Rutte echoed those sentiments: "Greece must also honour the commitments it has made with us."

Merkel did not push this plan further. However, she said it was about "how Europe can help Greece accomplish the tasks given to it."

The EU focus on bailouts was supposed to give way at Monday's summit to a renewed push to stimulate growth and create jobs across European economies.

This idea even saw tentative moves to place an ambitious free-trade deal with the United States on the coming agenda. But at its root was the announcement that 25 of 27 countries had adopted the new pact on budgetary discipline.

The Czech Republic joined Britain on the outside looking in, but a threat by Poland to withdraw evaporated after France gave ground in an argument about the influence of non-euro countries on eurozone summits.

Pushed by Germany and the ECB, the treaty – to be formally signed in March – will require governments to introduce laws on balanced budgets and impose near automatic sanctions on countries that violate deficit rules.

Only those countries that sign up will be able to access bailout aid from a new rescue fund whose legal basis was also ticked off at the talks. It will enter force after 12 nations ratify it.

Story continues below…

The pact is a "first step toward a fiscal union," said European Central Bank chief Mario Draghi amid hopes among some governments that the pact will prompt the ECB to step up a controversial bond purchase programme.

With Italy and Spain still fragile, EU leaders will discuss in March whether to add half as much again to the new rescue fund's initial €500-billion size, amid wider moves to beef up IMF resources.

"We are getting the feeling that there is a shift in Germany's position and I am optimistic," said Italian premier Mario Monti.

European Commission chief Jose Manuel Barroso said €82 billion of unspent EU funds could kick-start growth and job creation – but with the catch that money is matched locally.

Among ideas adopted by the summit for boosting growth in Europe, there were calls to lower the tax burden on employers to get more people hired, and give all young people guaranteed options in work, training or study.

However, a summit statement concluded: "There are no quick fixes. Our action must be determined, persistent and broad-based."

AFP/The Local/mry

The Local (news@thelocal.de)

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Your comments about this article

12:11 January 31, 2012 by jg.
"...the treaty ­ to be formally signed in March ­ will require governments to introduce laws on balanced budgets and impose near automatic sanctions on countries that violate deficit rules."

Does the phrase "near automatic sanctions" imply that France and Germany will continue to ignore such rules and refuse any sanctions? This is what happened in 2003, when several EU states exceeded the 3% of GDP limit imposed in existing treaties - whilst some countries were obliged to pay substantial fines, France and Germany simply refused. It is no good French and German politicians preaching to the Greeks if they choose to flout the rules when it suits them.
13:33 January 31, 2012 by ChrisRea
That's very good news! Let's hope that things will move forward as planned.
14:12 January 31, 2012 by derExDeutsche
aside from the creditors, who will be the ONLY ones receiving any 'rescue' monies, and politicians who can continue on with their charade, its hard to imagine how this is good news for anybody.
15:38 January 31, 2012 by Englishted
12 from 25 to ratify? less than half.

If cuts and more cuts you want then this is the way forward .

One question not answered in the report which if any of the 25 are going back to their electorate to vote on this ?,I believe Ireland must as it is written in their Constitution however I may be wrong but I will watch and wait to see if democracy is once more bypassed in the E.U..
17:44 January 31, 2012 by raandy
it is a step in the right direction but no solution to the debt ridden Euro members like Greece,Italy,Portugal,Spain and ireland.

It would take a much larger rescue fund to bail out Italy.

A reprieve until the next contagian or election in France.

François Hollande, has pledged to renegotiate the pact while outlining public spending plans that could put France in breach of the rules.The treaty has not yet been ratified and fear is that the election will take place before France ratifies the treaty.
18:59 January 31, 2012 by ChrisRea
@ derExDeutsche

Limiting national budget deficits does not mean giving 'rescue' money to creditors, but preventing significant increases of the national debts. Now you see the good news?
00:07 February 1, 2012 by jj the Compassianate
Chancellor Angela Merkel is right in having an EU budget tsar monitor Greece. One thing that liberals do not understand is; 'helping people who do not take responsibility for themselves is just wasting your time, energy, and money. In the long run, they will just waste what hand outs you give them.' So Greece has to realize that they have to be treated like children, until they learn to be responsible. The sad thing about this is, they better learn fast because they will drag the whole world down with them. Have a Fantastic day.
08:22 February 1, 2012 by McM
I understand that this is a treaty or should I say just a pact, that is outside the EU. at present and that it has no actual legal force of EU law as yet . Nor a force of law for the EU institutions, or any EU law for the countries that have signed . It does not upset the single market agenda which is a good sign not does it deal with any financial transaction tax FTT.

Then what is it?

A good step in the right direction albeit a little overdue. When we have a formal EU summit hopefully a more concrete agenda will surface and the EU will try to rebuild some faith with the rest of the financial world
09:41 February 1, 2012 by ChrisRea
@ McM

The treaty agreed yesterday and to be signed in March is an intra-EU treaty (all its signatories are EU members). Of course it has no legal force yet, as the article clearly states: 'It will enter force after 12 nations ratify it.' That is the normal procedure of treaties: first they are agreed, then signed, and then they enter into force.

What is it? An 'agreement of the willing' to prevent a future debt crisis by taking preventive measure. Yes, it is overdue in respect to the present crisis, but it shows that there are countries willing to learn from it and take action. Anyway, the markets received the news positively and most of them went up. So, good news, as I said.
17:40 February 1, 2012 by luckylongshot
So Europe gets itself so badly in debt that the interest bill gets so high that it starts destroying the weakest economies and Frau Merkel celebrates a plan to implement austerity. This is akin to celebrating a new barn door after the horse has bolted. It might feel like an achievement but it changes nothing. What is going to be done about the crippling interest bill that is hurting the middle class in Europe, saboutaging any chance of recovery and making the greedy private bankers that control the issuing of currency even richer?
21:31 February 1, 2012 by ChrisRea
@ luckylongshot

So you would prefer to make a habit from having public debt crises?
18:22 February 2, 2012 by luckylongshot
This debt crisis was as inevitable as the sun rise. It is the unescapable result of having a debt based currency system controlled by private banks as the following quote from Thomas Jefferson demonstrates.

>> >>

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson, (Attributed)

3rd president of US (1743 - 1826)

What we need to do now is take the power to issue money away from the private banks rather than impose austerity.The problem is the system needs to be changed.
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