Last week we published an article on the draft fiscal discipline treaty. In the days that followed negotiations continued at the intergovernmental summit and the dissenters appear to be growing in number.
The new fiscal discipline treaty was agreed on Monday 30th January with one member noticeably absent. Joining the British in their decision not to sign up was the Czech Republic’s Prime Minister Petr Necas. Although this may not come as a huge surprise (the eurosceptic president, Vaclav Klaus, delayed the ratification of the Lisbon Treaty by withholding his signature back in 2009), it indicates that not all member states are ready to adhere to such tough fiscal requirements, regardless of the possible ramifications of not doing so.
As a new member state the Czech Republic will have to join the euro at some point in the future. In order to achieve this they will have to sign the fiscal discipline treaty. It appears that the current posturing is merely grandstanding in election year; however, regardless of how their domestic elections play out, the Czech’s will have to overcome the internal political divisions that exist within their tumultuous coalition.
So where does this leave the fiscal discipline treaty? Twenty-five member states are signed up and so it is a victory for those such as Angela Merkel and Nicolas Sarkozy, who have been the main proponents of these conditions; however, there are still pitfalls ahead. As reported last week, the Irish opposition continue to call for a referendum on the treaty. Although the treaty was worded so as to avoid referenda, Ireland’s attorney general has been consulted for a legal opinion.
Denmark is also under internal pressure to go to a popular vote. Those eurosceptics on the right and left of the political spectrum have taken confidence from a Gallup poll suggesting that 27% of the population is against the pact. Although this is a minority, it is a sizeable one and will not make the current rotating President of the Council of Ministers, Helle Thorning-Schmidt, sit particularly comfortably for the next few months.
There are also complications coming from France. Francois Hollande, the Socialist candidate and, more importantly, frontrunner for the April French presidential elections, has stirred the issue up on the domestic scene. Hollande wants an increased role for the European Central Bank, the creation of eurobonds and a European financial transaction tax and has pledged to re-negotiate the treaty if he wins. It is not clear if he will actually be able to do this after the current French President Nicolas Sarkozy signs it in March. If nothing else, this makes life awkward for Sarkozy on the domestic scene.
Some of the criticisms levelled at the fiscal discipline treaty are its focus on austerity and retribution for fiscal misdemeanours. At the close of the summit this week, European leaders were keen to shift the emphasis from austerity as the only facet of the treaty. The Council announced a focus on three other issues; creating jobs for young people; completing the single market; and helping small and medium-sized enterprises. They will discuss these subjects and issues, such as the growing divergences between member states’ economic situations and the social consequence of the crisis, at a European Council meeting in March.
This adds an interesting angle to the meeting in March as the management of social consequences and labour market reforms have traditionally been well guarded by individual member states. Although this is unlikely to alter dramatically, it may provide the opportunity for some alignment of policies and improved focus of structural funds and training programmes for young people.