The EU's new budgetary 'golden rules'

(BRUSSELS) - The EU's fiscal treaty, which France's Constitutional Council ruled Thursday does not require a constitutional amendment, aims to reinforce budgetary discipline in the wake of the debt crisis. Signed by 25 European Union states minus the Czech Republic and the United Kingdom, the treaty was a German demand as the price of financial solidarity with debt-laden, recession-hit eurozone partners and will introduce "golden rules" making balanced budgets mandatory. En route to winning office, French President Francois Hollande threatened to block ratificaton but settled for agreement on extra measures to boost growth.

Here are the main points of the treaty:

-- The 'golden rule'

Countries that ratify commit to balanced budgets, ideally in surplus over the course of economic cycles. The structural deficit, which strips out one-off effects such as debt repayments and the economic cycle, should be capped at 0.5 percent of gross domestic product. Countries with debts comfortably below the 60-percent-of-GDP EU threshold will get more leeway, up to 1.0 percent of GDP for the structural deficit.

-- Automatic correction

Each state must ensure that "automatic consequences," brakes, are triggered when this goal is missed by too great a margin, and are obliged to take action within a certain timeframe.

-- Rule enshrined, if possible, in constitutions

The treaty asks states to insert the new rules "preferably" into their constitution. Germany backed down on initial constitutional inistence when it became apparent that a series of referendums could torpedo the agreement. Instead, the debt brake takes effect "at the latest one year after the entry into force of this Treaty through provisions of binding force and permanent character."

-- Court supervision

The European Court of Justice will verify that countries adopting the treaty have delivered on their legal commitments at national level and under set criteria. Where this is not the case, a state could be taken to the court by peers and, in the ultimate sanction, face an EU fine amounting to 0.1 percent of GDP.

-- Near-automatic sanctions for excessive deficits

The annual public deficit limit will remain at 3.0-percent of GDP, as enshrined in a longstanding European Union Stability and Growth Pact (SGP). If the executive European Commission deems a state to have violated this ceiling, there is a risk of financial penalties. Imposition of these sanctions will be harder to wriggle out of than at present with a qualified majority of states needed to stop the fine. Such a vote is difficult to obtain.

-- Eurozone summits

At least two summits per year are envisaged purely for eurozone states, with non-euro pact signatories invited "at least" once per year.

-- Entry into force

The inter-governmental treaty has been ratified by 12 states, eight from the eurozone. It will enter into force once 12 eurozone states have ratified it, but not before January 1, 2013. Eurozone countries need to have ratified the treaty by March 1, 2013, in order to be eligible for assistance from the European Stability Mechanism (ESM), an emergency fund of some 500-800 billion euros.

-- Growth appendix

Three measures designed to act as levers towards growth were agreed at a June summit of EU leaders: a recapitalisation of the European Investment Bank, where a capital injection of 10 billion euros should translate into 60 billion-worth of lending to boost innovation, enterprise and energy efficiency; the issuance of up to 5.0 billion euros of new joint "project bonds," again expected to be leveraged up into many times more to invest in cross-border energy, transport and digital infrastructure; and the re-allocation of 55 billion euros' worth of unspent EU grants to states.