EU Leaders’ Summit Agrees Rules to Avert Crises
EU leaders at last have come to an agreement framing rules for their member countries to maintain fiscal discipline in order to avert another financial crisis. The agreement has been much anticipated by the world investors ever since the Greek crisis erupted since the beginning of this year. The new Eurozone rules are framed to force a member country to clean its finances and maintain economic discipline, well before its economic problems start to threaten the zone as a hole.
Germany Chancellor Angela Merkel was quoted as saying by BBC, “Everybody agreed that there must be a permanent crisis mechanism, and everybody agreed that this must be formed by the member states." Germany argued for amendment of Lisbon treaty, which bans members from bailing each other out.
Salient features of the news Eurozone rules are as follows:
- EU officials will warn governments about property and speculative bubbles.
- The EU will impose stringent fines on countries that borrow and spend too much.
- The permanent crisis fund will replace a temporary one, worth €440 billion ($610 billion).
- Progressive sanctions would be imposed on countries that raise debt more than the debt level allowed and EU’s Stability and Growth Pact, which is 60% of GDP.
- Sanctions for breaching EU deficit and debt limits should be almost automatic.
- Independence of the European Central Bank will be respected.
- Incentives for pursuing sound fiscal policy will be strengthened.
Some member states are already getting cold feet on how the new rules may affect their countries, even though there is a broad agreement in containing crises. EU rules stipulate that the countries must not run budget deficit more than 3 percent of their GDP. But most of the countries, even Germany, are having deficits well above that limit.Continued on the next page