German Chancellor Angela Merkel said after the December summit that the Union, by agreeing on a new fiscal compact, had started addressing the root causes of the crisis. “We have shown today that we have learned from mistakes made in the past,” she argued, saying the EU has put in motion "a step-by-step process that will re-establish confidence in our common currency." But she stressed the UK is aware that it relies as much on a stable euro than other EU countries. “We are all in the same boat,” she said, arguing EU leaders had achieved a breakthrough deal which will guarantee stability for the euro and the Union.
The ratification is unlikely to encounter problems in Germany. As the 'fiscal compact' will be presented as international law, the Bundestag and the Bundesrat, representing the sixteen Länder, will both decide by simple majority. No referendum is expected. So far there are no indications that the ratification in Germany might be a problem as both the opposition socialist SPD and the Greens have supported so far the euro rescue politics of Chancellor Angela Merkel.
In an interview to newspaper Le Monde after the summit, French President Nicolas Sarkozy said he had "done everything" to keep the British onboard with the new treaty. "But there are clearly now two Europes" that have emerged from the summit, Sarkozy said: "One which wants more solidarity between its members, and regulation – and the other which is attached to the sole logic of the single market." About British demands, he added: "Let me add that the [British] demands on financial services were not acceptable. The crisis came from the deregulation of finance. Never can we accept coming back on this. Europe needs more regulation."
As to ratification, the situation in France is looking highly uncertain because of the Presidential election. François Hollande, the Socialist candidate who is leading in opinion polls, said he would renegotiate the treaty if he was elected President (see further details under "issues").
Irish Europe Minister Lucinda Creighton said Dublin and many other member states expected the European Central Bank to take a more pro-active approach to the debt crisis in the weeks following the summit, stepping up its bond-buying programme. Creighton said there was "very deep concern" within her government that the new treaty would be taken up by only 26 states. "We have an absolute preference for a treaty at 27," she said. Creighton added that she regretted the British decision to remain apart but hoped to maintain close cooperation with London on EU matters. The minister said that the Irish authorities will attempt make sure Britain finds a place at the negotiating table. "We have an obligation to find a way to bring back the UK into the discussion. We will try to pursue that and hope it will be a shared goal," Creighton said.
Irish Finance Minister Michael Noonan said he wasn’t certain yet if Ireland would need to hold a referendum on the package, but warned: “It really comes down on this occasion to a very simple issue: do you want to continue in the euro or not?... Faced with that question, I think the Irish people will pass a referendum.”
In Slovakia, ratification of the international agreement is far from certain due to the changing political landscape.
The current government is acting in a caretaker capacity after Prime Minister Iveta Radi?ová lost a confidence vote in parliament linked to the ratification of the EU's bailout fund, the European Financial Stability Facility (EFSF). Her junior coalition partner, the Freedom and Solidarity party (Sloboda a Solidarita, or SaS) rejected the EFSF, causing the government to fall.
General elections are planned on 10 March. The approval of the new treaty will probably require a simple majority. Leaders from across the political spectrum agree on the need to strengthen fiscal discipline and surveillance in the euro area but their opinions vary on the detail.
The current coalition members – the Slovak Democratic and Christian Union (SDKÚ), the Christian Democratic Movement (KDH), the Hungarian minority Most-Híd party and the Freedom and SaS – all support automatic sanctions for countries that breach EU fiscal rules.
However, SaS is opposed to plans for greater fiscal centralisation in the EU. If more powers are to be delegated to Brussels, the party will insist on holding a referendum. Robert Fico, the leader of the main opposition party, the socialist SMER-SD, said that he supported greater fiscal discipline in the EU and called on the current majority parties not to change their position should they lose the March election.
British Prime Minister David Cameron defended his decision to stay out of the treaty at the conclusion of the December summit. "We want the eurozone countries to come together and to solve their problems. But we should only allow that to happen inside the European Union treaties if there are proper protections for the single market and for other key British interests. Without those safeguards it is better not to have a treaty within a treaty but to have those countries make their arrangements separately."
Helle Thorning-Schmidt, Danish prime minister and leader of the Social Democrats, said she would try to seek approval for the new fiscal compact. “We’ll now analyse the agreement and discuss with the foreign policy committee and the European Scrutiny Committee [in parliament],” she said. Meanwhile, it remains unclear whether the agreement would have to be subject to a referendum in Denmark. An opinion poll for Jyllands Posten shows that 53.9% of Danes want the pact to go to a public vote, while 22% think it will solve the euro crisis.
The prime ministers of Hungary and the Czech Republic, both non-eurozone members, have said they will refuse to sign up to a treaty that impinges on their tax sovereignty. “We support the solutions which result in the stabilisation of the eurozone,” Czech Prime Minister Petr Ne?as said, citing his country’s dependence on exports to Western Europe. “But we are convinced that tax harmonisation would not mean anything good for us,” he added, according to a report by Bloomberg.
Hungarian Prime Minister Viktor Orbán said Central Europe had the potential to become the most competitive region in Europe once the current debt crisis is overcome. “So the only kind of cooperation we can have with the eurozone is one which does not damage Hungary’s competitiveness,” he said.
Mario Draghi, president of the European Central Bank (ECB), was optimistic as he came out of the late session of the summit deliberations. The agreement on a new treaty was "a very good outcome for euro members", he said. "It is quite close to a good fiscal compact, and it is going to be a basis for much more discipline, economic policy for euro area members, and certainly it is going to be helpful in the present situation."
Herman Van Rompuy, president of the European Council, said after the summit that the goal of the fiscal compact was to strengthen fiscal discipline, introduce more automatic sanctions and stricter surveillance in the eurozone. However, he did not say how the pact would stimulate growth or improve solidarity among eurozone members. He added he was optimistic that many countries would join. "I am optimistic because I know that it is going to be very close to 27", said Van Rompuy. "In fact, 26 leaders are in favour of joining this effort. They recognise that the euro is a common good."
Speaking before the European Parliament after the summit, José Manuel Barroso, European Commission President, stressed that it was "indispensable" to strengthen budget discipline but that "structural reforms" to stimulate growth and employment were also needed.
- EUROPEAN PARLIAMENT and POLITICAL PARTIES
Ahead of the December summit, EURACTIV asked the views of the main political parties in the European Parliament on treaty change, Eurobonds and the role of the European Central Bank (ECB). Please click here to read the full statements that were submitted to us.
Below are post-summit reactions.
The European People's Party (EPP), the largest political group in the European Parliament, said stricter budget discipline rules will strengthen the eurozone's credibility.
However, Elmar Brok MEP (Germany), the EPP's foreign affairs spokesman, also warned about ratification risks and recommended "a two-fold approach" whereby the new fiscal discipline provisions should also be implemented in the EU treaty's existing protocol on the excessive deficit procedure.
Brok also warned of potential new divisions in Europe that could emerge from the new treaty. "It is vital that as many countries as possible participate. And it is indispensable to remain within the existing Community institutions and not to build new structures. Only then can we believe that the champions of the said new Euro Treaty do not have an intergovernmental Europe in mind which would mean less capability to act."
Speaking in the European Parliament after the summit, Joseph Daul MEP (France), leader of the EPP group in the assembly, said the summit had raised the question of the UK's place in the European Union. "Clearly, the isolation of the British shows that their coalition government sees the European Union as a mere free-trade area, without any consideration for solidarity and responsibility towards its partners. In this context, I believe that the British rebate should be put into question. Our taxpayers' money should be used for things other than rewarding selfish and nationalistic attitudes."
In an interview with EURACTIV, Sergei Stanishev, leader of the Party of European Socialists (PES), rejected the view that the eurozone crisis could be tackled mainly through fiscal measures, insisting that without policies to restore growth and create jobs, there could be no fiscal stability either.
Important elements missing from the summit decisions include granting the European bailout fund a banking licence, introducing eurobonds, imposing of a financial transactions tax, and a "real plan" for investment and growth, he said.
In the European Parliament, Guy Verhofstadt, leader of the liberal ALDE group, said EU leaders had taken some positive steps such as including fiscal discipline into a new treaty and insisting that a balanced budget rule be incorporated into the constitutions of member states. "However, we doubt this alone will be sufficient to tackle the crisis we face today. There is no mention of a banking licence for enhanced ECB intervention, nor of a Eurobond market or a collective redemption fund to bring down excessive debt."
"This is still not the economic and fiscal union we need." Besides, he said any new treaty would only be acceptable "if the community method and democratic control are fully respected" and insisted on fully involving the Parliament in the drafting process. Verhofstadt was since appointed to a group of around 100 delegates from EU institutions and member states representatives tasked with drafting the new treaty.
In Parliament, the Greens/EFA group was critical of the summit outcome, saying it failed to respond the immediate crisis needs and created new uncertainty with an intergovernmental agreement outside the EU legal framework.
"In terms of responding to the immediate sovereign debt and credit crisis, the summit is a fiasco, with EU leaders totally failing to deliver the necessary emergency financial backstop to extinguish the fire facing eurozone sovereigns," said Greens co-presidents Rebecca Harms and Dany Cohn-Bendit MEP.
"The proposed intergovernmental treaty raises as many new questions as it answers. While it is clear that the UK's unrealistic demands could not be acceded to, the new proposed treaty represents the ultimate failure of the flawed intergovernmental approach to the crisis over the past two years."
The leftist GUE/NGL group denounced the summit's outcome as "a dangerous attempt to enforce extreme austerity by all means". "Enshrining austerity as default economic policy is simply inviting further disaster as it is now so blatantly clear that the neoliberal approach does not work," said group leader Lothar Bisky MEP (Germany). "Only comprehensive financial market regulation will lead to real solutions. We urgently need the decoupling of public finances from markets and the decoupling of politics from rating agency assessments."
The GUE/NGL also warned about the lack of democracy in the treaty revision process. "People must have a voice on the drastic changes that are currently under discussion, a transparent and democratic process with the full involvement of Parliament and the peoples of Europe must be followed."
European Conservatives and Reformists (ECR) group President Jan Zahradil MEP defended British Prime Minister David Cameron for protecting the UK's national interest, saying French and German leaders were doing the same. "It's very clear we are in a multi-speed Europe. It is a reality. When things get tough, we go intergovernmental. The commission and parliament were completely sidelined. Let us stop fooling ourselves. And when and if we go intergovernmental, there is an open question about the legal validity of such a treaty and its compatibility with EU primary law."
Marta Andreasen MEP, from the UK Independence Party (UKIP), said that the UK should now better leave the European Union: "The Conservative Party is deluded if it thinks that it can still wield any influence at European level. From sitting at the top table we have been relegated to getting whatever scraps the rest of Europe chooses to throw our way.
"We pay tens of millions of pounds daily to be in a club that has effectively blackballed us. I believe that the people of Britain must now be given a say if this is the type of Europe that they want to be a part of. The only sensible solution is wholesale withdrawal."
Guntram Wolff, deputy director of Bruegel, a Brussels-based economic policy think-tank, said the new budget discipline rules, which will have to be incorporated into national constitutions, would go a long way towards addressing the eurozone's shortcomings on budget discipline.
But he said the summit failed to produce a credible strategy on how to generate growth, especially in southern Europe. "Europe’s south is to different degrees in a growth emergency of weak education performance, poor governance, high debt and low competitiveness. Failure to address this at regional, national and European level will prove harmful."
Wolff also says the summit has remained silent on the fragility of the banking system. "The integrated euro area banking system needs an integrated and powerful banking supervision and resolution authority backed by enough means to prevent bank runs. The current system centred on national supervisors and national fiscal resources is clearly fragile and bank runs have started in a number of countries. While the ECB is stepping up its involvement as a liquidity provider to banks, ultimately more capital may be needed. The heads of state and government have yet failed to convince markets that they are willing to identify those banks in serious trouble and provide them with the capital needed."
In a post-summit analysis, the European Policy Centre (EPC), said the new fiscal compact was a step in the right direction towards strengthening fiscal discipline. But it said it failed to tackle economic divergences within the eurozone that have fuelled the crisis.
"The loss of competitiveness in many countries on the EU's periphery and the increase of competitiveness of core eurozone countries, has significantly contributed to the current crisis. Rising current account deficits in countries such as Estonia, Portugal, Greece, Spain, Ireland and Italy have pushed these countries into the epicentre of the euro crisis. This is why these countries, unable to devalue their national currency, have to implement major structural reforms to increase their competitiveness, which is indispensable if they want to (eventually) grow out of their problems."
The challenge facing the eurozone can therefore be put into simple terms, the EPC says: how can austerity and growth be pursued simultaneously? There is an undisputed need to cut public deficits and the overall level of public debt, writes the EPC but "continuous austerity has negative effects on growth, which in turn worsens the problems in countries most affected by the crisis, with public spending cuts contributing to prolonged and deep recessions."
"Concentrating solely on fiscal discipline will not get EU countries and the euro out of the crisis."
Simon Tilford, from the Centre for European Reform, a UK-based think-tank, said the December summit "will go down as yet another missed opportunity," and has fallen short of a fiscal union as there will be "no joint debt issuance, no shared budget, and no mechanism to transfer monies between the participating countries."
"There was no agreement to close any of the institutional gaps in the eurozone, such as the lack of either a real fiscal union or a pan-eurozone backstop to the banking sector. There was no agreement to boost the firepower of the European Financial Stability Fund (EFSF), while the move to beef up the IMF’s finances fall far short of what is needed. As a result, there is little to prevent a further deepening of the crisis."
The new fiscal compact, Tilford said, is little more than a revamped version of the EU’s existing Stability and Growth Pact. "Fiscal austerity alone will not solve the crisis. Indeed it has become part of the crisis. Such a strategy has already failed in Greece and Portugal and it threatens to make a bad situation in Spain and Italy even worse. What the eurozone needs is economic growth, and this agreement further worsens the outlook for that."
Turning to Britain's relation to the EU, Tilford was equally pessimistic, saying the December summit "could prove a big step towards UK withdrawal from the EU".
Mats Persson, director of Open Europe, a eurosceptic British think-tank, said that “from a strictly legal point of view” the new sub-group of EU member states can only use European institutions to enforce the proposed new treaty “if all member states agree, which is not the case.” However, he notes that politics is likely to trump law on this issue.