Share

EU leaders agree on fiscal pact

Brussels - European Union leaders sealed a new fiscal pact ensuring tougher budget discipline but failed to agree on a treaty change to enshrine the rules, meaning a deal may now involve the 17 eurozone nations plus any others that want to join, diplomats said.

An agreement involving all 27 EU members fell through - raising the prospect of a two-speed Europe - after British Prime Minister David Cameron demanded concessions that Germany and France were not willing to give, one of the officials said.

"We've always said we would do it at 17 if it didn't work at 27. That's what happened," one senior EU diplomat told Reuters.

The EU leaders, meeting in Brussels, agreed on automatic sanctions for euro area deficit offenders unless three-quarters of states vote against the move, and approved a new fiscal rule on balanced budgets to be written into national constitutions.

"There is a deal between leaders on the new fiscal compact," an EU official told reporters.

After nearly 10 hours of talks running into the early hours of Friday morning, they also decided that the currency bloc's future permanent bailout fund, the ESM, would be capped at €500bn, as Germany had insisted.

It will also not get a banking licence, which would have allowed it to draw on European Central Bank (ECB) funds to increase its firepower, another move Germany objected to.

As soon as the draft summit agreement leaked late on Thursday, a senior German official rejected key measures including letting the future rescue fund, the European Stability Mechanism, operate as a bank, and a long-term goal of issuing common eurozone bonds.

Shares and commodities fell while the euro remained under pressure, on growing doubts that Europe could forge a credible plan to solve the eurozone's debt crisis.

European Council president Herman Van Rompuy, the summit chairperson, wanted all 27 EU states to agree to the rule changes via a minor adjustment to a treaty protocol that could be implemented quickly without requiring full ratification.

But German Chancellor Angela Merkel demanded a fully-fledged treaty change to give the measures extra weight.

Merkel and French President Nicolas Sarkozy had said that if all 27 EU states did not support more fiscal union by adapting the existing Lisbon treaty, which took eight years to negotiate, the 17 eurozone countries should press on alone with more integration.

The danger for Cameron is that if a large majority of EU countries do push ahead with deeper integration it could involve discussions over changes to the single market and financial regulation, both of which could have a profound impact on the British economy.

"Cameron was clumsy in his manoeuvring," another senior EU diplomat said. Efforts continued to get the British to shift their position.

Draghi downbeat

ECB president Mario Draghi spooked financial markets on Thursday by discouraging expectations that the bank would massively step up buying of government bonds if EU leaders agreed on moves towards closer fiscal union.

Draghi said the bloc's existing bailout facility should remain the main tool to fight bond market contagion, despite its clear limits. It was illegal for the ECB or national central banks to lend money to the IMF to buy eurozone bonds, he said, appearing to veto one firefighting option under consideration.

"One step forward, two steps back," said Alan Clarke, UK and eurozone economist at Scotia Capital. "The eurozone leaders might as well not bother. Pack their bags, go home, enjoy the weekend and do their Christmas shopping."

The new ECB chief said his recent remark that "other elements" might follow if eurozone leaders agreed to seal tougher new budget rules had been overinterpreted as hinting the bank could step up bond purchases.

The plight of Europe's banks was thrown into sharp relief. The European Banking Authority told them to increase their capital by a total of €114.7bn, significantly more than predicted two months ago.

A Reuters poll of economists found that while 33 out of 57 believe the eurozone will probably survive in its current form, 38 of those questioned expected this week's summit would fail to deliver a decisive solution to the debt crisis.

IMF

The EU leaders agreed to explore the option of eurozone central banks making bilateral loans to the International Monetary Fund (IMF) to the tune of €150bn, with the hope that a further €50bn would come from donors outside Europe.

Although the ECB chief ruled out the IMF buying eurozone bonds, that left the option of lending directly to governments as it more customarily does, although Italy for one has insisted it needs no such assistance.

France and Germany had pressed to amend the European Union treaty to toughen budget discipline, which they want to have ready by March. But countries other than Britain were sceptical of full-blown treaty change.

Swedish Prime Minister Fredrik Reinfeldt, speaking for a non-euro state, said: "We want to stick with the 27 concept of course because all of us are members of the European Union and we want to have our influence. We want to keep the European project together."

However, he said there was no support in Sweden for treaty change as of now.

The Franco-German plan would slap automatic penalties on countries that overshoot deficit targets and make countries anchor a balanced budget rule in their constitutions.

"General government budgets shall in principle be balanced. Member states may incur deficits only to take into account the budgetary impact of the economic cycle or in case of exceptional economic circumstances," the draft summit conclusions said.

The sanctions could be stopped only if three-quarters of eurozone countries are against them.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.9%
Rand - Pound
24.10
-0.9%
Rand - Euro
20.59
-0.7%
Rand - Aus dollar
12.42
-0.9%
Rand - Yen
0.13
-0.8%
Platinum
915.75
-0.8%
Palladium
1,028.36
-3.5%
Gold
2,159.96
+0.2%
Silver
25.03
-0.6%
Brent Crude
85.34
-0.1%
Top 40
66,252
0.0%
All Share
72,431
0.0%
Resource 10
53,317
0.0%
Industrial 25
100,473
0.0%
Financial 15
16,622
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders