PM signs fiscal compact treaty

Deal a step in right direction, Thorning-Schmidt says, but sceptics point to sovereignty concerns and ability of future governments to manage economic downturns

Denmark joined with 24 of the EU's 27 members to ink the union's fiscal compact on Friday at the European Council’s spring summit in Brussels.

The UK and the Czech Republic were the only two EU member states not to sign the treaty, with Ireland promising a referendum before their parliament adopts the measures that will implement stricter limits on budget deficits and government spending.

After signing the treaty, PM Helle Thorning-Schmidt agreed with Herman van Rompuy – who was re-elected as president of the European Council the night before – when he stated that the treaty was a “step in the right direction”.

“We have just completed a very important task,” Thorning-Schmidt told journalists. “We have tried to get the EU through the crisis. But while we might not be through it yet, we have done our part to ensure that Greece can get through the crisis and to ensure that we never again arrive at a situation where one country’s economy affects the others so greatly.”

The treaty will come into force once 12 of the 17 Eurozone countries ratify the measures as special ’budget laws’ in their respective parliaments.

The treaty was only compulsory for Eurozone countries, though countries with their own currency, such as Denmark, have signed up, amongst other reasons, to send a clear message to the financial markets that they are serious about maintaining balanced budgets.

Several political parties have argued the treaty would infringe on national sovereignty and would require a referendum before the measures are adopted.

But legal experts at the Justice Ministry determined this would not be the case, much to the disappointment of the Euro-sceptic Dansk Folkeparti.

The far-left Enhedslisten also argued that the treaty’s focus on budget discipline meant that future governments would be forced to follow austerity policies and would also prevent them from using deficit spending to stimulate growth.

There is growing uncertainty about how the mechanisms are supposed to operate for punishing countries who fail to uphold the strict rules on budget discipline.

Many voices have also argued the treaty does little to stimulate growth and help draw Greece out of its hellish depression that arrived after having to implement several waves of austerity measures in order to secure EU bailout funds and so avoid defaulting on its loans.

However, Greece’s spiralling debt – in part a result of the country's deliberate attempts to hide the true extent of its borrowing problems – contributed greatly to the decision by European leaders to tighten government borrowing practices in the first place when it threatened to ‘infect’ the rest of Europe and bring down the euro.

The European Central Bank (ECB) is doing its part, however, and late last week released almost four trillion kroner (€530 billion) of low-interest loans into the banking sector.

“It’s very rare that the ECB makes decisions today that affect tomorrow,” Thorning-Schmidt said. “What the ECB has done is allow banks to lend to small and medium-sized businesses and it will make a difference. A more stable Greek economy will also make a difference.”

The signing of the treaty and Van Rompuy’s re-election were not the only items on the agenda, as Serbia was finally granted full EU candidate status after Romania dropped its objection.