A new Fiscal Treaty – and now what? The Danish Economic Affairs Minister urges countries to ‘take their promises home’.

Following the agreement on a new Treaty on January 30 in Brussels by 25 EU leaders, DeHavilland EU spoke in an exclusive interview to Margrethe Vestager, Denmark's Economic Affairs and Interior Minister, chairing the EU's economic and financial affairs (ECOFIN) meetings until July 2012. She spoke about Denmark's expectations and reservations in regard to its six-month EU presidency at a time of such economic insecurity.  

At an informal EU summit on January 30 in Brussels, 25 EU leaders agreed on the bloc's new “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” with the Czech Republic joining Britain in refusing to sign up to the Treaty – at least for now.margrethe vestager

The summit also saw an agreement sealed on the introduction of a permanent Eurozone bail-out mechanism, with a lending capacity of €500 billion, from July 2012 – a year earlier than expected. The leaders also pledged to come to a deal on Greece's debt “within days”.

The new inter-governmental Treaty on a reinforced economic union, also known as the "fiscal compact", will set tougher rules on budget deficits and oblige Eurozone Member States to incorporate a “golden rule” for a balanced budget within a year into their legal system after the ratification of the Treaty, expected by 2013.
 
Countries with a large public deficit will face automatic sanctions while those with excessive debt will be required to conclude detailed reform agreements with the European Commission. The Commission will also have the power to reject national budget plans that deviate from agreed EU targets of 0.5 percent of gross domestic product.

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Any country failing to adhere to the new requirements may be taken to the European Court of Justice which, under the new Treaty, will have the power to fine countries whose balanced-budget laws fail to meet new regulations. These financial penalties could amount up to 0.1% of a country’s GDP.

The measures have been designed to prevent a repeat of the sovereign debt crisis which has destabilized the Eurozone over the past two years, but experts remain skeptical. With the stability of the global financial markets dependent on the confidence in Europe’s ability to stabilise its finances, many want to see tangible proof that these summits – this latest being the 17th held in two years – are moving Europe towards actual solutions.

“While the fiscal pact aims at longer term solutions to the crisis, it still fails to approach the more urgent problems, such as competitiveness among the EU countries,” Professor Sascha Steffen from the European School of Management and Technology told DeHavilland. “Within the European Monetary Union, fiscal transfers will be needed to reward the measures and reforms implemented by the peripheral states and as adjustment mechanism to overcome these differences in competitiveness.”

Margrethe Vestager, Denmark's Economic Affairs and Interior Minister, told DeHavilland EU that the success of the pact would depend on how well national governments implemented the measures agreed in the treaty.  “Whatever is promised in the Treaty, these promises must be taken home and addressed on a national level,” she said in an exclusive interview. “The obligations that are agreed upon in Brussels must be implemented at a national level within parliaments and assemblies – this is where the difference can be made.”

The Danish Minister added “How countries go about implementing fiscal consolidation in line with the EU recommendations into national legislation and how they introduce structural reforms that enhance growth will, among other factors such as competitiveness, determine how successful the pact will be.”

However, Hannes Swoboda MEP, the leader of the Group of the Progressive Alliance of Socialists & Democrats in the European Parliament said: "Even if this treaty is ratified in national parliaments, it is and will remain the wrong approach. Solving problems outside the EU's structures must remain an isolated event and not become the rule for the future.”

In regard to the inclusion of automatic sanctions in the pact, Minister Vestager said that all signatories would be expected to adhere to the rules and that if the “unity of agreement” was broken by any state, it should be the right of the other signatories to follow a course of action against them. However, Denmark questioned the proposed destination of the fines demanded by the European Court of Justice.

“Denmark has a problem with the idea that the fines should go to into the permanent European bailout fund which, because of our non-Eurozone status, is not within our reach,” the minister said. “We are in favour of the alternative idea that the fines should go into the overall EU budget.”

Other EU member states harbor fears that the treaty's main architects, Germany in particular, will use the new treaty to further their own agendas. Finnish Foreign Minister Erkki Tuomioja, who described the Treaty as "at best necessary and at worst harmful," claimed that the fiscal pact was more "about Germany's domestic policy needs," and that the so-called "golden rule" insisting on balanced budgets was designed to appease German public opinion.

“Germany's leading role in this crisis has become increasingly clear,” said Prof. Steffen. “Germany was even removed from negative review while France was downgraded. It's likely that Berlin will be among those who benefit most from this pact.”

Czech Prime Minister Petr Necas joined Britain's David Cameron, who was isolated after blocking an EU treaty change and forcing Eurozone countries to negotiate a fiscal accord outside the Union, in not signing the treaty, citing constitutional reasons for not putting his signature to the future document

While maintaining their own stance against the Treaty, the British remained concerned that the new text will further diminish their influence in Europe and fear even deeper isolation should the treaty's signatories forge closer cooperation in the Single Market without them.

However, experts believe the inclusion of the UK is important to the EU's financial future. “While a concrete involvement is difficult to predict, it is in the interests of both the UK and the Eurozone members not to leave Britain isolated,” said Professor Steffen.

“(Denmark) believes that success comes from the whole of the EU working together, or as many members as possible doing so,” Margrethe Vestager added. “Most EU issues rely on the need for the majority of member states to work together for them to be successful. We will get out of this what we put in.”

EU finance ministers hope that the final approval of the new treaty will be completed by March 1, allowing a one-year ratification process thereafter for Member States. The French President, Nicolas Sarkozy, announced that it was unlikely that his country would ratify it before the May 6 presidential elections. The Treaty to govern the bailout facility will also be signed at a yet unspecified future date.

Nick Amies, Journalist for DeHavilland EU

The full interview with Margrethe Vestager, Economic & Interior Minister, Denmark can be downloaded from: http://www1.dehavillandeurope.eu/exclusive-interviews    
 
DeHavilland EU is a specialist provider of EU political intelligence and monitoring services.  For all press enquiries please contact Helene Champagne, Director, DeHavilland EU, tel: +32 (0) 2791 7615 or email: [email protected]  

 

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