EU bids to turn a page in debt crisis
Photo © Boguslaw Mazur - Fotolia
(BRUSSELS) - European leaders will attempt to close one chapter in the debt crisis on Monday by putting the finishing touches to a pact on balanced budgets and reforms they hope can unlock economic growth, despite the persistent problems over Greece.
Heads of state and government from the 27 European Union states gather from 3:00 pm (1400 GMT) in Brussels, as Belgium stages a general strike in protest at further spending cuts envisaged after yet another credit rating downgrade.
Awaiting the outcome of negotiations with bank creditors aimed at chopping a huge chunk off Greece's debt, the EU is focused on a key tangible.
First on the menu: final agreement on a treaty designed to reinforce fiscal discipline that was a red line for Germany in exchange for financial solidarity with struggling eurozone partners.
The pact will apply to 26 countries inside and outside the eurozone, excluding Britain, and countries that want to tap future rescue funding from a reinforced financial "firewall" will have to ratify the treaty on fiscal discipline in order to do so.
Its entry into force, after 12 signatories complete legal requirements, could unlock fresh anti-crisis measures from the European Central Bank (ECB).
Actual signing of the deal that will introduce a "golden rule" obliging balanced government books, backed by the threat of court-ordered cash penalties for any state that drags its heels, is scheduled for the next EU summit on March 1-2.
A couple of disagreements remain to be ironed out on Monday, namely whether semi-automatic sanctions would be applied to those who badly miss debt and deficit targets, and how much say non-eurozone countries should have at twice-yearly eurozone economic governance summits.
A separate treaty establishing a permanent rescue fund, the European Stability Mechanism (ESM), is intricately linked because of the condition that the first pact must be ratified before this finance can be accessed.
For now, the ESM is to have an effective lending capacity of 500 billion euros, but the International Monetary Fund wants the eurozone to add half as much from a leftover pool of similar guarantees.
This issue will be tackled at the March meeting, leaders using this one to explore ways to balance austerity with policies including lowering the social security tax burden on employers in a bid to create jobs, especially for the young.
"No figures, no spectacular decisions" is how Luxembourg Prime Minister Jean-Claude Juncker put it.
Few experts imagine that large chunks of the eurozone at least can escape recession in these first six months of 2012.
The negotiations in Greece, for two years now a recurring headache for eurozone, EU and international partners, were given a jolt at the weekend with a German call for Brussels to take control of the Greek budget.
This was angrily batted back in Athens.
The aim there is to reach agreement on a voluntary exchange of bonds that would wipe 100 billion euros ($130 billion) off the country's debt of 350 billion euros.
If that deal is struck, Athens can pursue talks on a second public aid package worth about 130 billion euros, a figure which may rise depending on a new international audit.
The IMF, which is bound by rules to lend only to countries that have sustainable debt levels, has insisted that the level of Greek debt be reduced to no more than 120 percent of national output by 2020.
It currently stands at around 160 percent of gross domestic product, and sources close to the talks said proposals now on the table would only get Greece down to around 130 percent.
Closing the gap may also depend on a fresh international audit and a possible increase in governmental loans.
A new pact to spread budgetary 'golden rules'