Questions Over New Euro Rescue \'Masterplan\'

Jan 8 15:43 2012 Marc Glendening Print This Article

The eurozone crisis is far from its resolution. The last 'masterplan' proposed by Brussels which subscribes for stronger measures within the Stability and Growth Pact and automatic sanction mechanisms has yet to prove its efficacy.

The EU has been preparing to reveal a last-ditch 'masterplan' to save the euro.

Over many months,Guest Posting a succession of summits have invented ever bigger amounts of money the EU hopes to throw at the euro-zone debt crisis with seemingly little idea of how to amass them.

So far the EU's only strategy appears to have been to try to intimidate the markets into submission with big numbers rather than come up with a longer-term solution that restores growth to troubled euro-zone economies.

Clearly, and unsurprisingly, that hasn't been working. It's not only the lack of detail behind every EU pronouncement that has failed to convince. The appearance of perpetual indecision on the substantive problems has also raised more fundamental questions about whether the EU as a decision-making structure is too rigid and incapable of acting with the dynamism required to secure Europe's prosperity in the fast-moving 21st century world.

In this context, it's hardly surprising that the ratings agencies have continued to criticise and downgrade the credit-worthiness of euro member countries.


Recent developments show that the EU may finally be changing course. Talks led by the so-called 'Merkozy' partnership of the French and German leaders have shifted from broadcasting hopeful funding plans to discussing 'refounding' the EU through treaty changes that will enforce 'fiscal union'. The plans are being touted as what the euro-zone needs to survive in its current form.

More details will emerge in the coming months, but one of the key measures already being floated is the idea of automatic sanctions against those countries that breach euro-zone borrowing rules such as the requirement that budget deficits should not exceed 3% of GDP.

Yet few seem to have noticed that 23 EU countries, including 14 euro-zone members, are already in the EU's 'excessive deficit procedure' as a result of breaching this 3% rule which, under the current Stability and Growth Pact, should already have provoked sanctions.

These countries are in the deficit 'sin bin' despite the fact that the rules of the original Pact were softened in 2005, with 'exceptional circumstances' being permitted for deficits above 3%, 'other relevant factors' allowed before a deficit is considered excessive and longer deadlines for corrective action.

If auto-sanctions are approved, unless they are made retrospective against all 14 euro countries already in the excessive deficit procedure, only Finland, Luxembourg and Estonia would potentially be subject to them.

This would render the proposal effectively meaningless towards having a short-term impact on problem countries nor, in any case, will such sanctions be any solution to the underlying debt and growth problems of economies in difficulty.

Key questions

Now that the EU's outlook has turned towards toughening up their Stability & Growth Pact again, this provokes a series of further questions for EU leaders.

Firstly, given sanctions for excessive deficits have been available to the EU since the euro launched, why exactly have none ever yet been applied under the current Stability & Growth Pact rules?

Secondly, will the 14 euro countries already suffering 'excessive deficits' be let off auto-sanctions until they get back on track and then face financial penalties only after future transgressions?

More broadly, how will automatically imposing financial sanctions help countries get out of their debt and low growth problems that tend to provoke excess deficits in the first place? Such sanctions will surely make a country's economic problems worse, which is presumably why none have ever yet been applied.

Referendum unlocked?

Finally, this issue also provokes a key political question for UK Prime Minister David Cameron on the question of an EU referendum, since these proposals are basically a toughening up of the EU's existing rules.

Despite not being in the euro, Britain is subject to the Stability Pact and committed to "endeavour to avoid an excessive government deficit", although is not bound by the penalty clauses should such endeavours fail. This deal is written into a Protocol of the EU Treaty that underpins Britain's opt-out from euro membership. Britain is, however, one of the nine non-euro countries also currently listed as being in the EU's excessive deficit procedure.

If future EU treaty changes centre on amending the Stability Pact clauses, Britain may well be drawn into the new auto-sanctions unless government negotiators succeed in getting an amendment to the country's euro opt-out Protocol to exclude the new measures.

Should UK negotiators fail, it will impossible for Prime Minister David Cameron to avoid holding an EU referendum, since his 'referendum lock' will have been breached.

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About Article Author

Marc Glendening
Marc Glendening

The author is the Political Director for the People's Pledge, a cross-party campaign for an EU referendum. For more information about Britain and the European Union please visit

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