Governments will be forced to keep budget deficits below three per cent of GDP each year. Real fiscal restraint may give ECB boss Mario Draghi the confidence to loosen policy and to start printing money, presumably the deal’s secret objective.
● “Automatic” punishments
Previously, budgetary offenders were only punished if a qualified majority of countries voted to apply sanctions. Under the new proposals, a qualified majority will have to vote against to stop a sanction.
● A golden “balance” rule
As if that was not enough, Eurozone members will be required to implement a “golden rule” domestically, making sure they act to bring budgets back towards balance, regardless of whether or not they have deficits of under three per cent of GDP.
● No small countries can stop bailouts
Merkel is taking no more chances after Slovakia nearly derailed the bailout proposals in October. The European Stability Mechanism (ESM) is to be brought forward from 2013 to 2012, and a qualified majority – probably of 85 per cent – of countries will be required to vote on its use, stopping one small country getting in the way again.
● Regular meetings of euro leaders
“As long as the crisis continues,” Sarkozy announced, “we want a monthly meeting of heads of state and governments. Each meeting must have a precise agenda focused on the goal of boosting economic growth in the Eurozone.” The thinking behind this is to make sure all governments are acting in unison, and to boost growth – seen as the best way of reducing debt burdens in the long-run.
● No more private sector bond losses
Greece may have been helped by a “haircut” imposed voluntarily on private sector bondholders, but Merkel and Sarkozy made it clear that they do not want to see automatic haircuts in future whenever a country asks for a bailout. It is unclear what this really means; it is unlikely to mean that no country will ever be able to default (for where will the cash come from?).
● It needs to be agreed this week...
Merkel and Sarkozy want other leaders to agree to the plan at the summit on Thursday and Friday. If they do agree, the plan can be negotiated and finalised before the French Presidential election in March and formally ratified shortly after.
● ... but might not be that easy
It is no mean feat to get 17 Eurozone countries to agree on anything, let alone treaty changes. Economists expect the other 10 EU members to disagree, leaving the Eurozone 17 to plough on alone – if they manage to agree anything at all.