Fiscal Compact Treaty

The “fiscal compact treaty ” outlines the closer integration of the national budgets of the 17 eurozone countries.
It imposes a  new legal framework and greater fiscal scrutiny to try and  avoid a repetition of some of the dubious financial practices that triggered the euro crisis. The treaty also agrees to strengthen mechanisms that guarantee short-term stability to euro economies in trouble.

The treaty must be ratified by January 2013 and will take effect once it is ratified by 12 of the 17 euro zone countries.

The treaty will be signed in March  2012 and will enter into force once it has been ratified by at least 12 euro area member states. It will be legally binding as an international agreement and will be open to the EU countries which do not sign it at the outset.  The aim is to incorporate it into EU law within five years of its entry into force.

The Fiscal Treaty requires EU Member states  to  a) keep their budget deficit below  3 per cent of annual gross domestic product (GDP) and  b) ensure their public debt does not exceed or is sufficiently declining towards 60 per cent of GDP.

c)  cap annual structural deficits  (when a government spends more than it receives in taxes) at 0.5 percent of gross domestic product. That limit can only be broken during a deep recession or exceptional circumstances that hit a government’s finances

Furthermore, the member states will have to incorporate this “balanced budget rule” into their national legal systems, preferably at constitutional level. The deadline for doing so is one year at the latest after the entry into force of the treaty.

Automatic penalties, including fines, will kick in if signatories exceed deficit limits unless a qualified majority of eurozone states opposes such penalties. Currently, the eurozone already has a so-called excessive deficit procedure that is supposed to kick in once a country exceeds the three per cent of GDP cap on national budget deficits set out in the Maastricht criteria. But in the past, the procedure has not been enforced as rigorously as it should be since governments often allied with partner states and used their majority to reinterpret the rules and avoid fines and other sanctions.

Legal action can be taken in the European Court of Justice against governments which breach it.  The court may impose a penalty “appropriate in the circumstances” and which does not exceed 0.1 per cent of the country’s GDP.

Treaty participants may temporarily deviate from their country-specific objectives “only in exceptional circumstances” and provided the deviation does not endanger medium-term fiscal sustainability.

Britain and the Czech Republic have already rejected the Fiscal Compact Treaty.

An Irish vote against the euro zone fiscal pact would  block Ireland from the euro zone bailout fund. The granting of  European Stability Mechanism (ESM) financial assistance is closely connected to the fiscal compact. Any country wishing to claim ESM assistance is required to have ratified the fiscal compact by 1 March 2013. It must also enshrine the debt-brake rule in its national law by the deadline set out in the treaty.

Gerry Adams of Sinn Fein has said he will be pushing for  an anti treaty vote.