The Summit in Brussels, where the European leaders should have found solutions to the debt crisis, came to an end today. EU leaders signed a joint governance arrangement. “The EU and the euro area have taken over in the past 18 months to improve economic governance and adopt new measures in response to sovereign debt crisis. However, market tensions in the euro area have increased and it is necessary to intensify efforts to address our current challenges. Today we agreed to move towards a closer economic union”, reads the final agreement.
Highlights of the new agreement include:
1. General budgets of government must be balanced or in surplus, with an annual structural deficit not exceeding 0.5% of nominal GDP.
2. The rule of limiting deficit “will include an automatic adjustment mechanism that is initiated in the event of deviations”, the mechanism being developed by individual countries based on principles proposed by the Commission. The Court of Justice will also make sure that this rule will be reinforced at national level.
3. Countries that want to release bonds will have to announce first the Commission and Council of Europe.
4. In the case of euro zone countries, if there is a budget deficit exceeding 3%, the European Commission may recommend measures and sanctions, unless a qualified majority of euro area Member States opposes.
5. “We agreed on an acceleration of entry into force of the Treaty on European Stability Mechanism (ESM). The Treaty will enter into force once ratified by a number of Member States representing 90% of capital commitments. Our common goal is that ESM to take effect in July 2012”.
6. “During the gradual introduction of paid-up capital, we are prepared to accelerate payments to maintain a capital ratio of 15% between paid-up capital and the outstanding amount of ESM programs and ensure a combined effective lending capacity of 500 billion euros”.
