During the evening of Monday 18 October, after more than 11 hours of negotiation, European economy and finance ministers agreed on the most ambitious reform of the Stability and Growth Pact since its creation in 1997. The compromise was facilitated by a political agreement between French and German leaders Nicolas Sarkozy and Angela Merkel, who met the same day in Deauville. The text of the Franco-German declaration on European economic governance is published in the EUROPE Document attached.
France and Germany agree that economic governance needs to be reinforced. With this in mind, they have agreed on the following points:
1) France and Germany emphasise that budgetary surveillance and economic policy coordination procedures should be strengthened and accelerated. This will require the following:
A wider range of sanctions should be applied progressively in both the preventive and corrective arms of the Pact. These sanctions should be more automatic, while respecting the role of the different institutions and the institutional balance.
In enforcing the preventive arm of the Pact, the Council should be empowered to decide, acting by qualified majority voting (QMV), to phase in sanctions in the form of interest-bearing deposits on any member state whose fiscal consolidation path deviates particularly significantly from the adjustment path provided for in the Stability and Growth Pact.
As to the corrective arm, whenever the Council decides to open an excessive deficit procedure, there should be automatic sanctions for any member state found by the Council, acting by QMV, to have failed to implement the necessary corrective measures within a six-month time limit.
Complementing the new legislative framework for the surveillance of economic imbalances, the case of any member state with persistent imbalances under surveillance by the Council will be referred to the European Council for discussion.
2) France and Germany consider that an amendment of the Treaties is needed and that the President of the European Council, working closely with the members of the European Council, should be asked to present concrete options allowing the establishment of a robust crisis resolution framework before its meeting in March 2011.
Amendment of the Treaties will be restricted to the following:
Establishment of a permanent and robust framework to ensure orderly crisis management in the future, providing the necessary arrangements for adequate participation of private creditors and allowing member states to take appropriate coordinated measures to safeguard financial stability of the euro area as a whole.
In the event of serious violation of basic principles of Economic and Monetary Union, and following appropriate procedures, suspension of the voting rights of the member state concerned.
The necessary amendment to the Treaties should be adopted and ratified by member states in accordance with their respective constitutional requirements in due course before 2013.