The Fiscal Compact Treaty on Stability, Co-ordination and Governance has been signed by twenty-five EU member states. The signature took place during a European Council meeting on the 1st and 2nd March 2012 after the text was finalised during an informal meeting of the Council on the 30th January 2012. The Treaty’s signatories have agreed on measures set to enforce fiscal discipline and stricter monitors throughout the eurozone.
The Treaty provides for a balanced budget rule which requires that the annual structural government deficit does not exceed 0.5% of nominal GDP. If a signatory’s national budget is less than this benckmark, the member state will be subject to automatic sanctions. The signatories are to transpose the balanced budget rule within a year of signature of the Treaty.
The Treaty also amends the voting mechanism in place for the excessive debt procedure and requires bi-annual Euro Summits. The UK and the Czech Republic are the only member states not signatories of the Treaty although it will only apply to euro-currency member states.
After ratification by at least twelve eurozone states, the Treaty will become legally binding as an international agreement. The provisions of the Treaty will then form part of the EU’s legal framework within five years. The European Commission will take each member state’s sustainability risks into consideration when recommending a time-frame for the convergence of the fiscal compact limits.
Post 1st March 2013, financial assistance granted under the European Stability Mechanism will only be available to member states that have ratified the Treaty and transposed the balanced budget rule into national law.
