EU, without Britain, moves towards fiscal deal

EuropeanParliament042009_01.jpg

Up to 26 EU countries will finalise a pact to enforce budget discipline more strictly in the eurozone by March, European Council President Herman Van Rompuy said yesterday in Strasbourg, as the bloc tries to move quickly to rebuild confidence without Britain's backing.

Van Rompuy expressed disappointment that Britain had shunned an agreement reached at an EU summit last week to pursue fiscal integration as part of efforts to tackle the debt crisis, but made clear the door would remain open for London.

"They recognise the euro is a common good," Van Rompuy said in a speech to the European Parliament, commenting on those in the agreement. "Then, early March at the latest, this fiscal compact treaty will be signed."

The 'fiscal compact' is meant to allow closer scrutiny of countries' spending to stop a similar debt crisis recurring and potentially making it more palatable for the European Central Bank to step up its purchases of distressed eurozone debt to hold down borrowing costs.

The euro fell to an 11-month low yesterday after German Chancellor Angela Merkel was quoted as saying in a closed-door meeting of her conservative lawmakers that she rejected any suggestion of raising the ceiling on Europe's future bailout fund, according to participants.

"Any hope of more money that is stifled triggers such a strong market reaction at the moment," a Frankfurt stock exchange trader said.

Merkel was responding to Van Rompuy's comment in Parliament that a review of whether the €500 billion limit on the planned European Stability Mechanism was adequate would be completed in March.

Britain refused to agree to changes to the EU's fundamental law, the Lisbon Treaty, to push tougher budget rules in the eurozone after it was unable to win a veto to protect its financial services industry against laws from Brussels.

British Prime Minister David Cameron's demand drew criticism from European Commission President José Manuel Barroso, who said any such concessions would have damaged the EU's single market, which guarantees free movement of people, capital, goods and services.

"The United Kingdom, in exchange for giving its agreement, asked for a specific protocol on financial services which, as presented, was a risk to the integrity of the internal market," Barroso told Parliament. "This made compromise impossible."

Sidelined, but not discriminated

Worried about being dictated to by a eurozone moving towards centralised control of national budgets, Cameron rejected treaty changes to try to maintain its influence, but now appears isolated.

"To use a British expression, when you are invited to the table, you are either a guest or you're on the menu," said Guy Verhofstadt, the leader of the alliance of liberals in the European Parliament, to loud applause.

Van Rompuy took a more conciliatory tone and sought to calm British fears of being sidelined in the future framework.

"This will not be the start of discrimination," he said. "At some stage, we will be 27 around the table and will be able to hammer out something which we were unable to agree on just a few days ago."

Many politicians and analysts believe Britain's decision will reduce its influence in shaping financial regulation, because the 26 other states that sign up to a new fiscal regime will meet more regularly and set the agenda.

"While formally Britain will still have on vote on financial regulation, its voice in the discussions deciding the direction of regulation will be weaker than the others," said Sony Kapoor, managing director of Re-Define, an economic think tank.

Still, in a sign of the emotions the question raises in Britain, Nigel Farage, a eurosceptic member of the European Parliament and leader of the UK Independence Party, said it was time for London to cut its ties with the EU altogether.

"Britain is going to make the great escape," he said. "You've decided to head off on the Titanic towards economic and democratic disaster and we are now in a life boat."

Several non-eurozone countries, including Sweden, Hungary and the Czech Republic, still need parliamentary approval before they can give their full backing to the move towards a fiscal compact.

Diplomats say this is largely a formality, but eurozone assets have lost ground since the summit, reflecting investor disappointment that leaders failed to agree more immediate steps for tackling the crisis.

The eurozone rescue fund sold €1.97 billion of three-month bills on Tuesday in an auction that met solid demand as investors sought safety in top-rated, short-dated paper.

However, analysts said the threat of a ratings downgrade of eurozone countries meant any attempt by the fund to raise long-term funds could prove much more difficult.

Centre-right leader Joseph Daul of France (European People's Party) said "26 out of 27 countries showed that shared sovereignty is better than sovereignty taken hostage by the markets." Unfortunately, "the result is not community based as we wanted but intergovernmental", he said, noting that the EP has a role as the guarantor of democratic legitimacy. Questioning the future of the UK budget rebate, Daul said, "If the UK's solidarity towards the other 26 is being abandoned, I do not see why the others should show solidarity to UK. Solidarity must work in both directions."

"The UK prime minister didn't want more regulation of financial markets, which is not acceptable, because the financial markets, the speculators in the City of London are those who have driven us into the crisis," said Socialist leader Martin Schulz of Germany. He said that the EP should make alternative suggestions on how to ensure stability in Europe, including more growth and employment. 

For the Greens Rebecca Harms (Germany) was also critical, saying the summit had no answers to the acute questions of the crisis; it was a denial of reality and of democracy.

"We can hardly call the summit a success. There were no immediate steps taken to calm the markets and no proposals for growth. We have seen a Europe more divided than before," ECR leader Jan Zahradil said. "Even the 17 eurozone countries are divided into two parts: those who will pay and those who will be paid." He defended British Prime Minister David Cameron as "only defending national interests".

There was no breakthrough at the summit, GUE/NGL leader Lothar Bisky said. "We should introduce a financial transaction tax and ban dangerous financial products," he added. Neoliberal policies such as privatisation and the redistribution of wealth upwards caused the crisis, austerity won't lead to growth, he said.              

EU leaders on 9 December agreed on a new treaty to tighten fiscal discipline in the eurozone, aiming to draw a line under the bloc's debt problems.

This new fiscal compact was backed by all 27 EU countries – except Britain – and means more automatic sanctions will be applied on budget rule-breakers in the future.

Countries committed to enshrine a "golden rule" to run budgets which are balanced or in surplus into their national constitutions "or equivalent level". The signatories also recognise the European Court of Justice "to verify the transposition of this rule at national level".

Subscribe to our newsletters

Subscribe
Contribute