EU leaders gathering for today’s summit in Brussels are expected to agree a ‘fiscal compact’ to help bring the EU’s most indebted nations back into line with the likes of Germany, which has, by far, Europe’s most healthy economy.
The intergovernmental pact means EU states will have to sign up to cast-iron rules governing budget deficits and public debt.
Under the pact, the current three percent allowable deficit for any EU country will be lowered to 0.5 percent of Gross Domestic Product (GDP)
States could face the European Court of Justice if they do not write the so-called “debt-brake” into their constitutional laws.
There will likely be fines of up to 0.1 percent of a country’s GDP of they fail to do it.
It is hoped the new pact will help rebuild the trust of the financial markets. They have raised severe doubts about the long-term economic health of several EU states and the euro itself.
The new pact will come into force on January 1 2013 subject to ratification by just 12 eurozone countries.
The UK will not sign the pact. British Prime Minister David Cameron vetoed any new treaty change at the last EU leader summit in December.
It is looking increasingly likely that only countries signed up to the pact will be able to benefit from EU bailouts, which could prove a serious headache for Ireland, which needs to put any new treaty to a referendum.
The Irish initially voted ‘No’ to the Lisbon Treaty.
Any rejection of this pact, could see Dublin losing billions in bailout funds.
Greece, Portugal and Italy could also see funds withdrawn.