European Union leaders signed a treaty in Brussels Friday to require their individual governments to balance their budgets or face economic sanctions if they do not.
The treaty is the latest response by Europe's leaders to contain the continent's two-year debt crisis that twice has forced Greece, and Ireland and Portugal once apiece, to secure international bailouts to keep from going bankrupt. It was signed by 25 of the 27 EU countries, with Britain and the Czech Republic declining.
Now, for it to take effect, it must be ratified by at least 12 of the 17 countries that use the common euro currency.
EU Council President Herman Van Rompuy said the treaty, drafted over the last several months, will help prevent another debt crisis. He said it would lead to a “restoration of confidence” in the eurozone, while boosting economic growth and job creation.
German Chancellor Angela Merkel, the leader of the effort for more stringent budget controls, said the treaty is an important milestone in creating a more unified Europe.
“”We are going to sign today the fiscal compact. This is a milestone in the history of the European Union because it's the first time we are really forcing ourselves to follow the guidelines of the Stability and Growth Pact. We are also checking in the European Court of Justice to see if the debt break is really implemented. I think it's a very strong signal and we are learning the lesson from the crisis, we heeded all the signals and we are looking into the future as a politically united Europe.”
Danish Prime Minister Helle Thorning-Schmidt said that while not all the details have been worked out yet on Greece's new $172 billion bailout, the treaty marked a turning point in dealing with the continent's debt contagion.
“Everyone knows that we're not completely finished in terms of the Greek situation, but everyone understands that we've taken substantial steps in a positive direction. And I note that for the first time in many, many months, this is not a crisis summit.”
Even with the signing of the treaty, Europe faces steep economic problems. The eurozone's jobless rate hit 10.7 percent in January, the worst mark since the euro was first used 13 years ago, and the EU is predicting the eurozone economy will slide into a mild recession this year.
Just hours after the treaty signing, Spanish Prime Minister Mariano Rajoy said his government would not meet its deficit goal this year. Spain has adopted an austerity plan, but Mr. Rajoy said the country's deficit would hit 5.8 percent of its economic output. That is nearly twice the EU standard and well above the 4.4 percent figure the Madrid government had agreed to.
The European leaders are also under pressure from leaders outside the continent to increase the size of its $661 billion bailout fund for future emergencies to $1 trillion. They postponed discussion at the Brussels summit on the size of the rescue account until later in March.
An increase in the size of the bailout fund is a contentious issue. Some northern European governments that have kept spending in check have grown weary of supporting debt-ridden countries on the eurozone's geographic periphery.
