Euro Zone summit
1. Euro zone summit took place in Brussels.
2. The Euro zone leaders intend to revise the EU Treaty in regarding the Euro Zone financial crisis.
3. The proposal would obligate all countries in single currency to write a GOLDEN RULE to balance their budgets in their constitutions. The new rule will introduce automatic sanction for country which breaches a deficit limit of 3% of GDP.
4. It would bring out ESM bailout fund by the year to 2012, allow taking decision by qualified majority and modified status to make clear that a debt write down for Greece was a one-off.
Stands of different countries:-
Germany Stand:-
· Germany has been in favor of fully automatic sanctions (in case any country breached the new fiscal rules) with national budget submitted or balanced for review by a supranational technocrat as a means of restoring confidence in the currency block. Berlin dropped its demand for European court of justice to have the power to prosecute the rule breakers.
France Stand:-
· France has favored more flexible and governed approach. It wants to retain the inter governmental approach; never minded such an approach has been founded wanting.
Brittan Stand:-
· Brittan is not in favor of revision of European treaty that will allow Brussels to exercise greater budgetary and fiscal control, because according old European treaty one country cannot bail out other country debt, which may lead to loss of financial sovereignty of that nation. Brittan had its apprehensions regarding this.
Outcomes of the Summit:-
1. Euro zone state budget should be balanced or in surplus.
2. The annual structure deficit should not normally exceed 0.5% of GDP.
3. If any euro zone member is in breach of 3% debt ceiling there will be automatic sanction including possible sanctions.
Who is going to play big role?
1. The private player i.e. Read banks especially European central bank (ECB) has a major role to play. ECB welcomed the deal but gave no hint that it was prepared.
2. The only question that the market is currently asking is whether the political deal open the way for more forceful intervention by the ECB in sovereign debt market. It was not clear what ECB would do.
3. What was clear was the Euro zone governments are counting on the ECB to sail to the rescue.
