Europe's planned budget stability treaty foresees exemptions from possible sanctions for countries that face "exceptional economic circumstances," echoing rules in force since the dawn of the euro.
The German-inspired treaty elevates to constitutional level many of the rules governing national budget deficits that were negotiated in the 1990s and stiffened as recently as last week, according to a draft text released in Brussels today.
Structural deficits may surpass 0.5 per cent of gross domestic product "in case of exceptional economic circumstances, or in periods of a severe economic downturn, provided that this does not endanger budgetary stability in the medium term," the draft says.
German chancellor Angela Merkel demanded the treaty-level barriers against runaway debt and deficits to offer the prospect of a future "fiscal stability union" that restores investors' shattered confidence in Europe's economic management.
The treaty, to be finalised out by late January and signed in early March, will take effect once ratified by nine of the 17 euro zone countries. European Union states outside the euro will join as they ratify, with the U.K. alone so far in refusing to sign up.
The European Commission's power to enforce deficit limits will be strengthened, requiring a high-deficit state to amass a supermajority within the euro region to head
off disciplinary procedures.
Governments will also be required to adopt balanced-budget amendments with an "automatic correction mechanism." Those provisions will be enforced by the European Court of Justice and national courts.
Meanwhile, British officials are to take part in “technical discussions” on the new arrangements, despite David Cameron blocking a new EU treaty at last week’s Brussels summit.
The move - agreed last night in a telephone call between Mr Cameron and European Council presidentHerman von Rompuy - is likely to be seen as an olive branch both to the other EU countries and his Liberal Democrat coalition partners.
“The prime minister reiterated that he wants the new fiscal agreement to succeed, and to find the right way forward that ensures the EU institutions fulfil their role as guardian of the EU treaty on issues such as the single market,” a Downing Street spokesman said. “That’s why we have today agreed to participate in technical discussions to take forward this work.”
Last night, the head of the International Monetary Fund Christine Lagarde warned Europe’s debt crisis would not be solved by Europe alone and called on all countries to work together to avoid a 1930s-style depression.
“It’s not a crisis that will be resolved by one group of countries taking action,” she said in Washington. “It’s going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action.”
Earlier, Mr Cameron’s spokesman rejected reports that the prime minister was agitating against the “fiscal compact” agreed by the other 26 member states.
In recent days, Mr Cameron has spoken to his counterparts in non-euro states Denmark, Sweden and the Czech Republic, all of whom are said to have concerns about the compact, as well as with Taoiseach Enda Kenny, who has warned he may have to put it to a referendum.
“He has been speaking to a number of different European leaders in recent days and will continue to do so in the coming days, with the objective in mind of making clear that we want to engage constructively,” said the spokesman.
Nevertheless, cracks appeared to be emerging in the group of 26 when Hungary and the Czech Republic said they would not join the new agreement unless plans for tax harmonisation were dropped. Neither country uses the euro and both said in Brussels last week that they would consult their parliaments before deciding whether to sign up.
PA
