25 EU States Sign Up for EU Fiscal Pact, Brits, Czechs Out

Finance | January 31, 2012, Tuesday // 02:08|  views

Britain's Prime Minister David Cameron, speaks during a media conference at the European heads of state summit in Brussels, Belgium, 30 January 2012. EPA/BGNES

A total of 25 out of 27 EU member states, Bulgaria included, have agreed to the new EU / euro zone fiscal pact for stricter budget discipline, a brainchild of Germany.

Only Britain and the Czech Republic refused to sign a fiscal compact in March that will impose quasi-automatic sanctions on countries that breach European Union budget deficit limits and make balanced budget rules part of national law.

"It is the first step towards a fiscal union. It certainly will strengthen confidence in the euro area," ECB President Mario Draghi said on the agreement as cited by international media.

Merkel told a news conference the agreements on the fiscal pact and a permanent rescue fund for the euro zone were a "small but fine step on the path to restoring confidence."

French President Nicolas Sarkozy said he expected a deal on reducing Greece's debt to private bondholders within days and he believed independent European institutions - a clear reference to the ECB - would help meet a funding gap.

French President Sarkozy made clear France's opposition to the German proposal to place Greek public finances under the control of a European commissar.

"That there should be supervision is quite normal, but there can be no question of any country being put under stewardship," he declared.

Sarkozy revealed Czech Prime Minister Petr Necas had said he could not sign up now for constitutional reasons.

European Parliament President Martin Schulz told the leaders the new fiscal treaty was unnecessary and unbalanced, because it failed to combine budget rigour with investment in public works to create jobs.

European Council President Herman Van Rompuy said a deal was needed this week to be finalized in time to avert a chaotic Greek default in mid-March when it faces huge bond repayments.

UK Prime Minister David Cameron has confirmed that Britain is staying out of the new EU Fiscal Pact.

"Our national interest is that these countries get on and sort out the mess that is the euro," Cameron declared in Brussels.

German Chancellor Angela Merkel said that although Cameron had shown no sign of relenting in his opposition to treaty change, the new pact could be easily slotted into EU law at a later date and she expected it would be within five years.

The half-day summit of the European Council that took place in Brussels late Monday focused also on a strategy to revive growth and create jobs.

Leaders agreed that a EUR 500 B European Stability Mechanism (ESM) will enter into force in July 2012, a year earlier than planned, to back heavily indebted states.

The latest developments with the EU leaders' summit come as negotiations between Greece and private bondholders over restructuring EUR 200 B euros of debt made progress over the weekend, but were not concluded before the summit.

Until there is a deal, EU leaders cannot move forward with a second, EUR 130 B rescue program for Athens, which they originally pledged at a summit last October.

Greek Prime Minister Lucas Papademos and his finance minister met the heads of EU institutions right after the summit to discuss conditions for the rescue package, officials said.

The ESM was meant to replace the European Financial Stability Facility, a temporary fund that has been used to bail out Ireland and Portugal. But pressure is mounting to combine the resources of the two funds to create a fund of EUR 750 B. German Chancellor Angela Merkel has said she will not discuss the issue of the ESM/EFSF's ceiling until the next EU summit in March.

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Tags: debt crises, debt crisis, Eurozone, euro zone, EU Fiscal Pact, Czech Republic, Britain, UK, greece, Germany, France, David Cameron, Jose Manuel Barroso, Martin Schulz, Petr Necas, Mario Draghi, Herman van Rompuy, Lucas Papademos, Nicolas Sarkozy, Angela Merkel, European Council, EFSF, European Financial Stability Facility, ESM, European Stability Mechanism


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