Apparently European leaders are close to an agreement that countries cannot run budget deficits higher than 3% of GDP. If you are left to wonder, "hey, didn't they already have that rule before" the answer is yes. Everyone had to promise a really, really stern oath not to run higher deficits before joining in the Euro group.
Of course, these promises meant nothing as there was no penalty for breaking the promise, and so the EU is proposing a new enforcement mechanism
Governments whose debts exceeded three percent of their GDP would be cited by the European Court of Justice, after which a super-majority of 85 percent of European governments would have to agree to impose some sort of sanction against the offending country.
I am not clear if the 85% is of the whole EU (which would require a vote of 23 of the 27 members) or of just the Euro zone (which would require 15 of the 17 countries that use the Euro as currency). Either way, I disagree with Drum and can't see how there is any hope at all here. I am left with a number of questions
- What is the likelihood that European countries will adopt this Constitutional provision and precedent for reduced sovereignty? Don't treaty changes have to be unanimous?
- Even if ratified, does anyone imagine the penalties will be high? Imagine Greece today if such penalties exist. How much are they going to worry about fines when they are already bankrupt? And what will be the optics of the EU adding new costs to countries that are in financial crisis? If a country in the future is doing things to endanger the euro from too much debt, the last thing the EU is going to be able to do is add to that country's burdens -- in fact, it is doing the opposite now, sending huge checks to all these countries
- How are they every going to get the votes when this comes up? Again, think about today. Would Italy, Belgium, Spain, Ireland, etc. vote to sanction Greece, when they know they are next?
I just can't see this going anywhere. And I would be surprised if the folks involved do either. My guess is that they hope this will settle the bond markets so they can kick the can down the road. Sure, we will have to deal with this all over again the first, inevitable time a country breaches the 3%, but that is later and right now they will accept a few years, even a few months, of survival.