The meeting of EU leaders on night of Thursday/Friday 8/9 December was the latest in a succession of such meetings designed to solve the eurozone’s problems (see also, Part A, Part B and Part C in this series of posts from earlier this year).
Headlines in the British press have all been about David Cameron’s veto to a change in the Treaty of Lisbon, which sets the rules of the operation of the EU and its institutions. Given this veto, the 17 members of the eurozone and the remaining 9 non-eurozone members have agreed to proceed instead with inter-governmental agreements about tightening the rules governing the operation of the eurozone.
In this news item we are not looking at the politics of the UK’s veto or the implications for the relationship between the UK and the rest of the EU. Instead, we focus on what was agreed and whether it will provide the solution to the eurozone’s woes: to fiscal harmonisation; to stimulating economic growth; to bailing out severely indebted countries, such as Italy; and to recapitalising banks so as to protect them from sovereign debt problems and the private debt problems that are likely to rise as the eurozone heads for recession.
The rules on fiscal harmonisation represent a return to something very similar to the Stability and Growth Pact, but with automatic and tougher penalties built in for any country breaking the rules. What is more, eurozone member countries will have to submit their national budgets to the European Commission for approval.
The agreement has generally been well received – stock markets rose in eurozone countries on the Friday by around 2%. But the consensus of commentators is that whilst the agreement might prove a necessary condition for rescuing the euro, it will not be a sufficient condition. Expect a Part E (and more) to this series!
Meanwhile the following articles provide a selection of reactions from around the world to the latest agreement.
EU leaders announce new fiscal agreement Southeast European Times, Svetla Dimitrova (9/12/11)
Eurozone crisis: What if the euro collapses? BBC News (9/12/11)
New European Treaty Won’t Solve Current Liquidity Crisis Huffington Post, Bonnie Kavoussi (9/12/11)
UK alone as EU agrees fiscal deal BBC News (9/12/11)
A good deal for the UK – or the euro? BBC News, Stephanie Flanders (9/12/11)
European leaders strengthen firewall Financial Times, Joshua Chaffin and Alan Beattie (9/12/11)
EU leaders push for tough rules in new treaty DW-World, Bernd Riegert (9/12/11)
German Vision Prevails as Leaders Agree on Fiscal Pact The New York Times, Steven Erlanger and Stephen Castle (9/12/11)
European Union leaders agree to forge new fiscal pact; Britain the only holdout The Washington Post, Anthony Faiola (9/12/11)
The new rules by EU leaders Irish Independent (10/12/11)
More uncertainty seen in wake of EU summit Deseret News (9/12/11)
EU president unveils raft of crisis-fighting measures The News (Pakistan) (10/12/11)
No rave reviews The Economist, Buttonwood (9/12/11)
Beware the Merkozy recipe The Economist (10/12/11)
Europe blunders into a blind, and dangerous, alley Guardian, Larry Elliott, (9/12/11)
As the dust settles, a cold new Europe with Germany in charge will emerge Guardian, Ian Traynor, (9/12/11)
Euro zone agreement only partial solution – IMF Reuters, Tova Cohen and Ari Rabinovitch (11/12/11)
Celebration Succumbs to Concern for Euro Zone New York Times, Liz Alderman (12/12/11)
In graphics: The eurozone’s crisis BBC News
- How do the latest proposals for fiscal harmonisation differ from the Stability and Growth Pact?
- How might a Keynesian criticise the agreement?
- What is the role of (a) the IMF and (b) the ECB in the agreement?
- Do you agree that the agreement is a necessary but not sufficient condition for solving the eurozone’s problems?