LONDON – All but two European Union countries have signed a new treaty to tighten budget discipline within the 27-member bloc.
Only Britain and the Czech Republic did not sign the “fiscal compact,” which aims to prevent the 17 states that use the euro currency running up huge debts like those which sparked the Greek, Irish and Portuguese bailouts.
The 25 signatories to the treaty, which was conceived largely in Berlin, are to write a golden rule on balanced budgets into their national constitutions or equivalent laws, Reuters reports.
“This stronger self-constraint… as regards debts and deficits is important in itself,” said Herman Van Rompuy, the newly-reappointed European Council president who was heavily involved in the negotiation process.
“It helps prevent a repetition of the sovereign debt crisis,” he added, in an address during the signing ceremony on the second day of a summit in Brussels aimed at boosting jobs and economic growth.
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German Chancellor Angela Merkel described the pact as a “great leap” and first step towards stability and political union, the BBC reported. Critics of the treaty argue that it is primarily a sop aimed at reassuring German taxpayers, unenthusiastic about funding further bailouts.
UK Prime Minister David Cameron, explaining his decision not to sign the pact, said his proposals for promoting business and slashing red tape had not been taken on board.
While there was overall relief today at the progress made in overcoming the euro zone’s raging two-year debt crisis, the event was soured by fresh public debt strains in Spain and the Netherlands.
One of the most outspoken critics of Greek fiscal profligacy, the Netherlands announced its “provisional” public 2012 deficit would rise to 4.5 percent of gross domestic product (GDP), instead of a previously forecast 4.1 percent, the Agence France Presse reported.
And Spain, which has found itself at the epicenter of the debt crisis, was forced to explain how its public deficit estimate for 2011 jumped from a previous forecast of 6 percent up to 8.5 percent of GDP.
To take effect, the new compact must be ratified by 12 euro zone states by January 2013. It will now go before national parliaments, and, in the case of Ireland, a referendum.
Any state that fails to back the treaty will forfeit the right to future bailouts. Dublin received a rescue package worth around $113 billion in November 2010.
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