EU summit aims for fiscal control pact | Europe| News and current affairs from around the continent | DW | 29.02.2012
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EU summit aims for fiscal control pact

Putting the economy back on track – that's the aim of the EU summit at the end of this week in Brussels. More than that, states are to sign the new fiscal union meant to bring more control and cooperation.

The introductory text to the fiscal union agreement makes the case that European economic policy should be seen as a joint task if closer cooperation is to bring economic growth. It goes on to say that in order to achieve this, we need stricter control mechanisms and fewer dangerous actions from signatories. To that end, the fiscal union is expected to be signed at the EU summit on Thursday and Friday.

This new pact requires every signatory state to enshrine a debt limit in national law. More precisely, that means that the structural budget deficit – independent of one-off or economic circumstances – cannot exceed 0.5 percent of gross domestic product, and the total debt cannot exceed 60 percent of total economic output.

Should a country miss these targets, the pact dictates that countries must put an automatic correction mechanism in place.

German Bundestag

The German parliament has passed the latest bailout package

On top of this, highly indebted states need to put together a budget and reform plan, to be inspected by the European Commission and the European Council. The states are also being asked to report the state of their debt to the same two bodies.

Violations of the fiscal union pact can be brought before the European Court of Justice in Luxembourg by individual or a group of member states, but the European Commission does not have this right, despite Chancellor Angela Merkel's attempts to push this through. On top of this, the fiscal union is not EU law, but a separate multilateral agreement, which will also make its implementation difficult.

Neither new or binding enough?

Critics say the fiscal union offers nothing new. Thomas Straubhaar of the World Economics Institute in Hamburg (HWWI) points to the EU's Stability and Growth Pact (SGP), which made similar conditions – and which Germany and France were the first to break.

Daniel Gros of the Center for European Policy Studies in Brussels, for his part, is critical of the fact that the debt brakes will only be enshrined in national laws, and not in constitutions. The fiscal union is to come into force on January 1, 2013, by which time the 12 states are expected to have ratified it. Britain and the Czech Republic are the only EU countries that have refused.

German Chancellor Angela Merkel, right, and Luxembourg's Prime Minister Jean-Claude Juncker, left,

Angela Merkel and Jean-Claude Juncker met ahead of the summit

Give Greece a chance

Merkel met Eurogroup head Jean-Claude Juncker in Stralsund a week ahead of the summit. Digging deep, he managed to find optimistic words: "Before the European Council meets on March 1 and 2, we will have another Eurogroup meeting to check whether what our Greek friends have had to implement is really being put in place by the government and the parliament, so that the second Greece program can come into effect. What has happened in Greece in the past two weeks has given me hope."

The Greek leadership is also doing its best to spread optimism. Greek embassies and consulates are busily promoting the webpage "Greece is changing," listing the reforms implemented so far, and those to come. The initiative is being supported by famous Greek companies – from banks to food producers to tourist companies to the oil and metal industries. The message is "Give Greece a chance."

More investment in indebted states

But to achieve that, economic pygmies need to become more competitive. The necessary cuts have led to heavy recessions. Now economic experts and politicians are calling for investment programs. Greek Prime Minister Lucas Papademos travels to Brussels on Wednesday to talk about investment opportunities for his country.

Juncker confirmed that this is an issue that will be on the agenda of the EU summit too. "No one should think that Greece will be back on its feet quickly," he said. "But no one should think that Greece will get back on its feet without our solidarity and an organized growth policy."

Merkel, for her part, broadened the perspective from Greece to the whole of Europe. At the coming EU summit, she said that stimulating growth in Europe would be a key point of discussion.

So once again, economic problems will dominate the summit – political questions, like Serbia's EU candidacy for membership, will likely be confined to the margins.

Author: Daphne Grathwohl / bk
Editor: Nicole Goebel

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