Brussels, 02/03/2012 (Agence Europe) - The president of the European Commission, José Manuel Durão Barroso, said on Friday 2 March at the end of the European summit that it had been a drama-free summit. The French president, Nicolas Sarkozy, said that while the economic crisis was not yet over, the page was being turned on the financial crisis and Europe's strategy was beginning to bear fruit. The German chancellor, Angela Merkel, said that there had been an appeasement in the eurozone and the new situation provided the necessary room for manœuvre to remove eurozone weaknesses through solid budgets and improving economic competitiveness.
Sarkozy explained the four-pronged EU anti-crisis strategy - public spending cuts and the signing of the budget pact; solidarity with the European Stability Mechanism (ESM) coming on stream in July 2012; convergence (the great weakness of the Maastricht Treaty); and governance, with the budget pact introducing economic government of a 25 country Europe. He congratulated Draghi on agreeing to massive support from the ECB for financial stability and growth in Europe, saying that between December and February, two three-year lending operations to banks had exceeded €1 trillion, and this had successfully relieved pressure on sovereign debt.
What is to be done now? Each country is urged to apply the social and economic guidelines set out by the European summit and seek the right balance between budget consolidation and growth-stimulus.
Budget pact. After its signature on Friday by 25 member states, the countries in the budget pact will now start the ratification processes (see EUROPE 10542). “This stronger self-constraint by each and every one of you as regards debts and deficits is important in itself. It helps prevent a repetition of the sovereign debt crisis. It will thus also reinforce trust among member states… The treaty contains a commitment to deepen economic coordination; it formalises the existence of summits of the eurozone”, explained the president of the European Council, Herman Van Rompuy. Merkel pointed out that it had taken very little time - four months - to draw up and agree on the budget pact.
Signed by all the EU apart from the United Kingdom and the Czech Republic, the budget pact boosts budget discipline and aims to introduce a golden rule into member states' law or constitutions to prevent excess government borrowing. The budget pact countries must keep their public finances in balance or in surplus. At worst, a country's annual deficit may reach 0.5% of GDP except in exceptional circumstances, such as a severe recession. The EU Court of Justice may be asked by a member state to verify whether a country has properly introduced the golden rule and may fine a country up to 0.1% of GDP for failure to comply. The budget pact will come into force in January 2013 as long as 12 eurozone countries have ratified it by then. Its intergovernmental nature is why Ireland has decided to hold a referendum (see related article). There is a clause in the pact stipulating that it must be included in proper EU legislation within five years of coming into force.
ESM. Merkel said that there were two bailout systems and countries that pledge to respect the budget pact may be eligible to aid from the ESM. Eurozone countries have decided to speed up the payment of the first two instalments of capital to fund the ESM, which will now come on stream in July 2012. France has already approved the funding measures. The EU17 will spend this month examining whether the bailout systems have enough cash (see EUROPE 10560). The head of the Eurogroup, Luxembourg's Prime Minister Jean-Claude Juncker, said they would look at whether it would be possible to merge the EFSF and ESM and a decision will be taken by the Eurogroup before the meeting of the IMF management board in a fortnight's time. Sarkozy said he had discussed the matter with Merkel. The Polish prime minister, Donald Tusk, said Austria might have problems with ratifying the treaty establishing the ESM.
Greece. Briefed by Juncker about the outcome of the Eurogroup meeting on Thursday (see EUROPE 10565), the eurozone leaders welcomed progress with the second Greek bailout, particularly the decision by Greece's international lenders to lay down conditions for the success of the Greek bond write-down in a statement published at the summit. Welcoming Greece's introduction of measures required of Greece in advance of the bailout, they said that the Greek civil service needed improving and implementation of the austerity programme would need to be monitored. The leaders agreed to provide EU funding to finance infrastructure, small business, jobs and training. (MB, also EH/AN/LC/JK/transl.fl)