Dear Reader,
This week I will report about the biggest economic debate in past 3 days –
The EU Summit in Brussels.
The assembly in the capital of Belgium fuelled a new debate about amendments in the Lisbon treaty, which is effective for not even one year. Especially two countries are pushing the plan to rewrite parts of the treaty. The demand to tighten the EU rules on national debt is mainly coming from Europe’s most influential countries Germany and France. Both Chancellor Merkel and President Sarkozy are urging other European leaders to accept the need for treaty changes, as the unsustainable debts in the euro zone pose a big threat.
(Source: FAZ)
The idea is to establish an automatic mechanism that would prevent any repetition of this year’s debt crisis in Greece.
The Change would bring sanctions for countries exceeding the limit allowed from the EU’s Stability and Growth Pact (SPG), which is – 60% of the gross domestic product (GDP). Therefore the sanctions in these countries would be tightened increasingly if the concerned ones fail to solve debt problems within months. A serious violation of the EU monetary rules would trigger suspension of the voting rights.
The Greece incident destabilized confidence in the euro currency also threatening the economic stability of other countries in the euro zone. The seriousness of this problem mainly triggered the debate about the amendments.
(Source: Toonpool)
During the crisis the European Union created an emergency fund of £386bn called European Financial Stability Facility (EFSF) to provide protection any member countries in the zone vulnerable to Greek type liquidity issues.
As the ESFS agreement only runs until 2013, the Franco – German plan is to introduce a permanent protection shield to avoid any “Greek-style surprises”, as the BBC Europe Editor of Europe Gavin Hewitt also stated.
The European Central Bank chief Jean Claude Trichet warned the heads of Europe’s governments “A new rescue system that is designed for future Greece-style bail-outs could inadvertently drive up short-term borrowing costs, imperiling struggling euro zone debtor nations”.
(Source: Focus News)
In my opinion, besides of the warning of Trichet, there are other important aspects to mention. The debate for change is not popular under all the European countries. Poland’s President Kaczynski for example stated that the idea of suspending a country's voting rights at EU ministerial meetings is "politically dangerous”.
In addition the European Union spend 8 long years to negotiate the Lisbon Treaty. Numerous obstacles and two refendums from the Republic of Ireland have complicated the process. To change or amend the treaty after not even one year and getting the approval of all 27 member states, I think will not be an easy task. One statement will underline my argument as Belgian foreign minister Steven Vanackere said, "nobody around the table wants to open up the treaty and change it fundamentally".
I think the main reason why Sarkozy and Merkel are pushing that hard to change the treaty and wanting banks to play a bigger role in any future bail-out is that the bill for the Greece crisis proved to be very unpopular at the home countries as the taxpayers ware main participants for the aid packages.
E.V.
Sources:
1. Focus
2. FT
3. Die Welt
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