In brief: provisions of the eurozone fiscal compact and economic issues

At the European Council meeting of 9 December all EU Member States with the exception of the UK agreed to participate in a ‘fiscal compact’ to increase budgetary discipline in the eurozone, enshrined in a new Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union. The principal change made by the Treaty is that eurozone members must in general keep their structural budget deficit below 0.5% GDP, as well as adhering to existing rules on debt (no more than 60% GDP) and general deficits (no more than 3% GDP). Following the approval of the final draft of the Treaty at the European Council meeting of 30 January, Angela Merkel described the fiscal compact as a ‘masterpiece’. Although a number of commentators have written in support of the compact, not everyone agrees: some see the compact as a misguided response that fails to address the root causes of the eurozone crisis.