| Merkel and Sarkozy want the new treaty to be finalised by the end of March [GALLO/GETTY]
French President Nicholas Sarkozy and German Chancellor Angela Merkel, now often referred to collectively as "Merkozy," announced on Monday that they had agreed new measures in a bid to restore faith in the eurozone’s single currency.
The pact hinges upon a proposed revision of the Lisbon Treaty that will tighten fiscal rules for member states.
"We want to make sure that the imbalances that led to the situation in the eurozone today cannot happen again," Sarkozy said at a joint news conference in Paris.
"Therefore we want a new treaty, to make clear to the peoples of Europe that things cannot continue as they are."
What the plan includes:
- An updated version of the 1997 Stability and Growth pact. The leaders are calling for automatic sanctions for countries violating annual budget deficits that are higher than three per cent of their GDP. These will be imposed by a qualified majority - a system of weighed votes - rather than the previously-required unanimous vote by the Council of Ministers. Eurozone members will also be required to insert "binding debt brakes" into their constitutions in order to keep cumulative national debt at less than 60 per cent of GDP.
- The changes will be enforced by the European Court of Justice (ECJ). The court will monitor the implementation of national laws to ensure they comply with their own debt laws. However, the ECJ will not have the power to veto budgets and send them back to national parliaments for review, as Merkel had previously proposed.
- An agreement that the losses for private investors in Greek government bonds would not happen again, and that all non-Greek bonds in the eurozone would be safe from default.
- A call for the European Stability Mechanism, the eurozone's permanent bailout fund, to be launched next year rather than in 2013.
- An official rejection of collectivised debt (known as eurobonds), which had been favoured by France.
While Merkel and Sarkozy want the new treaty to be finalised by the end of March, the joint package’s ratification is expected to encounter a number of setbacks, despite the fact that the two leaders are willing to draw up the treaty only for the 17 members immediately affected.
Some of the expected hurdles:
- Several countries, such as the Netherlands and Ireland, require substantial treaty changes to be approved not only by national parliaments but also by referenda. In addition to the delay this would introduce, there is no assurance that the voters of those countries involved will support the amendments.
- Upcoming legislative and presidential French elections will mean that Sarkozy will not ratify the treaty until after the results have come in.
- Even if the package is supported by the member states, it is unclear how the reforms will be written into law.
- While the treaty might help resolve some of the current debt crisis, it still offers no concrete solutions for economic growth in the region.
The package will be presented to the other member states in Brussels on Thursday under the auspices of the President of the European Council Herman Van Rompuy.