Thursday’s meeting of the European Council was only half a success. Angela Merkel got what she has been demanding for a while, but not quite in the way she preferred it: fiscal rules will, finally, be created and binding, but not enshrined in the treaties as the German Chancellor wished.
For quite some time, Angela Merkel has been declaring that a treaty change was the only solution for the current Euro-crisis and the only way to avoid future unravelling of public debts with fatal consequences for the common European currency. A treaty change inscribing a binding threshold for Eurozone countries’ public debts and deficits, foreseeing penalties for miscreants, would be the only possible way to ensure that a sovereign-bond crisis such as the one Europe is going through would never happen again. Merkel wanted the Member States’ budgets to undergo EU scrutiny before they were approved by national Parliaments, in order that these thresholds were abided by.
The Chancellor got what she wanted. The meeting that lasted throughout the early hours of December the 9th was indeed the first step towards fiscal union. The major critique of the Euro was seemingly addressed: a common currency will now have the foundations of common fiscal governance. Euro countries will have to run balanced or surplus budgets, which will be monitored by the Commission and the Council, giving the EU an unprecedented power over what is considered to be a core of national sovereignty – fiscal policy. The 17 Euro member-states will also have to include the established maximum percentages of the GDP which their budget deficit can exceed (0.5%) in their Constitutions.
What Merkel did not get was a treaty change agreed among all EU member-states. Britain’s veto of a change to the Lisbon Treaty has stolen the show and much of media’s attention in recent days. David Cameron, unable to secure sufficient safeguards for the British financial services industry decided to act on his earlier warnings and veto a change to the Lisbon Treaty. The second option, already previewed but not preferred, was to forge a new Treaty between the 17 Eurozone countries, open to all non-Euro country who wished to take part.
The immediate and palpable results were a fiscal union between the 17 to be codified in a new treaty by March, six non-Euro countries expressing their desire to join it, a further three to consult their parliaments before deciding to join it, and an isolated Britain.
Several questions remain unanswered and are proof of the daunting task ahead: is this enough to save the Euro? Can an international treaty be enforced by European institutions? Will different types of integration mean core clubs within the EU and an irrevocably split Europe? Can the Common Market survive different levels of economic and fiscal integration?
The next weeks will certainly answer the first two. Markets’ behaviour towards the Euro will tell if the long-term tighter fiscal rules were enough to inspire confidence in the common currency and whether the strengthened economic funds will be able to address markets’ uncertainties over Eurozone debt-stricken countries. Whether the Commission and the European Court of Justice will have power over an international treaty signed outside the EU framework will be a technical and legal question that will have to be addressed by March. Britain doesn’t want them to, Merkel maintains that it’s the only way.
The Euro remains in a very fragile position. Ms Merkel’s claims for tying peripheral and more lax-prone Euro-countries to tighter fiscal rules and austerity were addressed; Eurobonds were sidelined for now, and a new treaty will be developed. But she can only half-breathe with relief. Many an agreement before was met with distrust by the markets. A turning point seems to have been reached. Only time will tell if the 9th of December was an historic day for the Euro or the stamp on a split Europe.