The EU summit on Friday 9 December, during which 26 out of 27 member countries agreed on a new intergovernmental treaty including a “fiscal compact” to enforce budgetary discipline on states which breach the 3% deficit (of GDP) limit, will not provide the growth strategy that is necessary to help deeply indebted euro zone countries out of recession.
The fiscal compact proposals will not solve the problems of the euro for the peoples of Europe but will instead “institutionalise austerity” by enforcing an annual structural deficit that does not exceed 0.5% of GDP. A strategy for growth and for a rapid job generating recovery is completely missing. Without such a strategy there is no relief in sight for the stressed countries.
Nor did this summit, dominated by German and French political and financial considerations, include any suggestion of debt restructuring, or euro bonds or any kind of fiscal transfer mechanism to direct resources from prosperous regions to those which are struggling.
The key fact resulting from this European Council is that countries which are burdened by unsustainable debt will have even less prospects of growth. This is certainly the case for Ireland where the European “fiscal compact” will greatly restrict the policy space of future Irish governments. This is perhaps the greatest threat to recovery for an economy that is reeling from the weight of the 2010 EU/ECB/IMF high interest loan facility of €63 billion and an enormous sovereign debt burden following the recapitalisation of the main banks.