Future EU bail-outs only for treaty signatories, new draft says

20.01.12 @ 00:08

  1. By Valentina Pop
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BRUSSELS - The latest version of the treaty on EU fiscal discipline says countries cannot get bail-outs unless they sign and apply the pact. It also makes concessions to non-euro countries who want to take part in eurozone summits.

  • The quid-pro-quo on bail-outs was a German demand (Photo: ec.europa.eu)

Giving in to a German demand on the issue, the text - seen by EUobserver - says: "Granting of assistance in the framework of new programmes under the European Stability Mechanism [ESM] will be conditional, as of 1 March 2013, on the ratification of this treaty by the contracting party concerned and as soon as the transposition period ... has expired, on compliance with the requirements of this article."

The article in question calls for binding legislation - "preferably constitutional" - enshrining a "balanced budget rule" which obliges governments not to go beyond an annual "structural" deficit of 0.5 percent of GDP. A structural deficit is one which does not include temporary or one-off budget items.

The balanced budget rule can be set aside under "exceptional circumstances" however, such as an "unusual event outside the control" of the respective government or "severe economic downturn."

Failure to comply with the rule means the country can be taken to the European Court of Justice by one of the other signatories.

The EU commission, which in one of the previous drafts was granted the power to do this "on behalf" of other states, has been downgraded to a reporting function.

"If the European Commission, after having given the contracting party concerned the opportunity to submit its observations, concludes in its report that a contracting party has failed to comply with Article 3(2), the matter will be brought to the Court of Justice of the European Union by one or more of the contracting parties," the draft - the fourth one so far - says.

In one novel idea, it adds the €500-billion-strong ESM should be the recipient of any fines imposed by the EU court on deficit sinners.

The latest text also puts some numbers on how big the fines might be: "If the court finds that the contracting party concerned has not complied with its judgement, it may impose on it a lump sum or a penalty payment appropriate in the circumstances and that shall not exceed 0.1% of its gross domestic product."

'Outs' invited in

One point of contention - likely to sour discussions on Monday and Tuesday when finance ministers discuss the text in Brussels - is participation of non-euro countries in eurozone summits.

Last week's draft said only that they should be "informed" of what happens in the regular meetings, just like the European Parliament.

In the meantime, the Polish Prime Minister has threatened not to sign the treaty unless his country is allowed to take part and the Swedish government saw parliamentary support for the pact drain away for the same reason.

A new compromise wording - which, according to one EU official, is still not up to Poland's demands - allows the president of the euro summit to invite non-euro signatories "in order to discuss specific issues concerning the implementation of this treaty."

It adds that the president of the European Parliament "may be invited to be heard" at the events and that the summit chair should present a report to the EU assembly after each leaders' meeting.

National parliaments are also mentioned in the form of a new "conference of the chairs of the [national] budget committees." But the format and function of the new body is left up in the air.

The treaty is to enter into force on 1 January 2013, provided 12 euro-countries have ratified it or whenever the 12th one does so.

Another request of the European Parliament has also been kept - to merge the fiscal pact, which is being made by 26 EU countries at intergovernmental level, with the EU-27 Treaty within five years.

The text reminds the UK, whose veto on EU Treaty change created the mess, that other countries can circumvent its ban under so-called enhanced co-operation - an EU Treaty provision that lets sub-groups of states adopt new laws when there is no consensus.

EU leaders meeting on 30 January will seek political agreement on the text, with the aim of signing it in March.