EU LEADERS SIGN FINANCIAL PACT

 
Tim Wallace
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UK opts out of treaty but Cameron gives ground

EUROPE took a major step towards full fiscal union last night, as every EU member country except the UK and the Czech Republic vowed to cut budget deficits and submit themselves to greater scrutiny from the European Commission.

Prime Minister David Cameron refused to agree to the constraints at the European Council meeting, but was forced into an embarrassing climbdown from previous promises to block the new treaty from using EU institutions, allowing the European Court of Justice to judge when countries fail to stick to their promises.

The agreement “places no obligations on the UK”, insisted Cameron, claiming that he will “take action if our national interest is threatened”. The Prime Minister also restated his absolute support for maintaining the single market.

The 25 countries that signed up hope to have a formal pact in place by March, and plan to ratify and implement it in the following months.

The agreement is seen as a significant victory for German Chancellor Angela Merkel, who has spent months pushing for Eurozone members to agree on tighter budgetary constraints. Under the treaty, signatories will agree to cut budget deficits and reduce national debts as a proportion of their economic output or face “automatic” fines, likely to stand at 0.1 per cent of GDP.

In an effort to put in place a big enough “firewall” to protect Italy and Spain from bankruptcy, the Council also agreed to bring the establishment of the European Stability Mechanism forward to July – a year earlier than initially planned.

But fears remain that this €500bn (£418.1bn) fund may be insufficient, after Italian PM Mario Monti and Spanish leader Mariano Rajoy both made recent calls for it to be doubled to €1 trillion.

French President Nicolas Sarkozy used his press conference after last night’s meeting to raise hopes that the next European breakthrough could come in the form of a Greek debt deal “within days”, but said the ongoing negotiations were not a focus of yesterday’s meeting.

The leaders also issued a draft statement on jobs and growth, responding to intense political pressure over youth unemployment. It calls for each country to do more to boost apprenticeships, provide training for unemployed school leavers and reform labour markets.

Suggestions include cutting the tax-wedge that hits young and low-skilled workers, and ensuring qualifications are recognised across borders, boosting labour mobility. However, a source close to David Cameron argued that Britain is already taking steps to cut youth unemployment, so will not need to do anything more to adhere with last night’s agreement.