Europe Friday

A few details and articles.

From the EU: First session of the EU summit: Agreement on immediate action and on new fiscal rule for the eurozone

At a press conference Herman Van Rompuy, President of the European Council, and José Manuel Barroso, President of the European Commission, explained the short-term measures. Up to €200 billion will be made available to the IMF, the European Financial Stability Facility (EFSF) leverage "will be rapidly deployed" and the European Stability Mechanism (ESM) should enter into force in July 2012.

For the medium and longer term, the 17 eurozone countries will conclude an international agreement. This fiscal compact, to be signed no later than March 2012, will establish a new, stronger fiscal rule, including more automatism in the excessive deficit procedure. The objective remains to incorporate these provisions into the treaties of the Union as soon as possible. The Heads of State or Government of Bulgaria, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden indicated the possibility to take part in this process after consulting their Parliaments where appropriate.

Excerpts from the communiqué: "General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP." CR note: there are several ways around this "principle".

"A mechanism will be put in place for the ex ante reporting by Member States of their national debt issuance plans."

As far as rebalancing, there is mention of "the new macro-economic imbalances procedure".

From the WSJ: EU Leaders Forge Fiscal Pact

The 17 countries of the euro zone formally agreed to run only minimal budget deficits in the future and allowed the European Court of Justice the right to strike down national laws that don't enforce such discipline properly.

From the NY Times: A Treaty to Save Euro May Split Europe

In a day of historic, seemingly tectonic shifts in the architecture of Europe, all 17 members of the European Union that use the euro agreed to the new treaty, along with six other countries that wish to join the currency union eventually. Three stragglers, the Czech Republic, Hungary and Sweden entered the fold later, after a strong diplomatic push.

Gavyn Davies at the Financial Times is somewhat optimistic: Eurozone crisis might move from acute to chronic phase

My initial take on the deal is that it will be sufficient to dampen the acute phase of the crisis, but that the absence of a clear long-term strategy for growth means that there could still be a long period of chronic problems ahead.
...
the communiqué ... does mention the “new macro-economic imbalances procedure” ... This is intended to increase the pressure on surplus countries (mainly Germany) ... But this resolution, unlike the fiscal rule, has no teeth ... The missing growth strategy, and the missing plan to eliminate competitiveness imbalances in the eurozone, could prove to be very serious omissions indeed.

And from the FT Alphaville: The gap between summit rhetoric and reality