Germany pushed through a treaty for the European Union on Monday that contains almost automatic sanctions for member countries that fail to control their budget deficits, with 25 out of 27 nations signing off on the document. Only Britain and the Czech Republic refused to accept the tough new measures, but Germany dismissed their lack of agreement, with Chancellor Angela Merkel saying she expected the new pact to become EU law within five years.
Reuters reported Tuesday that the treaty, with tough provisions advocated by Germany, will take effect in March and incorporate balanced budget provisions into law, as well as impose sanctions that will be triggered by countries' failure to adhere to EU budget deficit limits. The European Central Bank approved of the news, with President Mario Draghi quoted saying, "It is the first step toward a fiscal union. It certainly will strengthen confidence in the euro area."
The summit meeting at which the treaty was discussed was supposed to focus on jobs and growth, but distractions over a failure to reach agreements on Greece's debt and a second bailout, as well as concerns over austerity policies themselves, hampered efforts to display a unified front by the 27-member nations and a more cohesive solution to the ongoing debt crisis.
Merkel said that the treaty, together with approval for the new European Stability Mechanism to launch in July of this year instead of in 2013, were a "small but fine step on the path to restoring confidence."
French President Nicolas Sarkozy voiced optimism on Greece's dilemma, saying that he expected private bondholders would reach agreement on debt reduction within days, and that Greece would be provided with the funding it needed to forestall default.
Economists are voicing doubt about the effectiveness of so much austerity in the face of recession, and EU diplomats characterized the new treaty as a means of calming irate German voters who are angry at the notion of bailouts, and also as a means of soothing markets. A British official was quoted saying, "To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do."