EU Summit Produces Fiscal Plan, Britain Abstains

At the long awaited EU Summit on Friday, euro-zone leaders came to an agreement and will look for closer fiscal ties among European Union nations.

For the countries that did reach agreement for the fiscal rules, 17 euro-zone nations committed to an inter-governmental treaty;  it is also open to euro-zone nations. At a press conference, European Council President Herman Van Rompuy said regarding the number of participants, “Rather rapidly, following consultations with national parliaments, we should know the number of participating states. I am optimistic because I know that it is going to be very close to 27. In fact, 26 leaders are in favor of joining this effort.”

The lone EU dissenter was Britain, who has refused participation after Prime Minister David Cameron did not obtain his desired concessions, according to MarketWatch. Cameron said at a press conference, “What is on offer isn’t in Britain’s interests, so I didn’t agree to it.”

German Chancellor Angela Merkel praised the agreement after being an early proponent of it.

Components of the fiscal plan

Friday’s fiscal pact includes a number of features:

  • A rule stating annual structural deficits should not exceed 0.5% of nominal gross domestic product, according to MarketWatch. This rule will first be introduced into the nations’ constitutions and then the European Court of Justice will need to verify compliance.
  • Automatic sanctions for countries that see their deficit surpass 3% of GDP unless a qualified majority of euro-area members expresses opposition.
  • Deployment of the eurozone’s bailout fund, the European Financial Stability Facility until the European Stability Mechanism, which is the EFSF’s replacement bailout fund scheduled to go into effect in July 2012.
  • Euro-zone and other EU members will try to have an extra EUR 200 billion (around $268 billion) available to the International Monetary Fund in bilateral loans to ensure that they have adequate funds for the crisis.