France inched closer to ratifying the European fiscal compact Tuesday after the lower house of parliament backed a bill incorporating the treaty into national law.
If the French Senate also backs the bill, France will be the 14th
country (and 10th eurozone member) to adopt the treaty, which was
signed by 25 out of 27 EU leaders in March.
The countries who have already ratified the treaty are: Austria,
Cyprus, Denmark, Germany, Greece, Ireland, Italy, Latvia, Lithuania,
Portugal, Romania, Slovenia and Spain.
The treaty will enter into force on January 1, 2013, if at least
12 eurozone countries have ratified it.
Its main elements, which are legally binding only for eurozone
members, are:
Countries must incorporate a "golden rule" on balanced budgets
into their legal systems, at constitutional level or equivalent,
including automatic correction mechanisms - such as spending cuts or
tax hikes - when the target is not met.
Structural deficits - that is, budget shortfalls not linked to the
temporary effects of economic recessions - must be kept below 0.5 per
cent of gross domestic product (GDP). Derogations apply "only in
exceptional circumstances."
Countries whose public debt breaches the EU limit of 60 per cent
of GDP must reduce it by 5 per cent per year. Conversely, countries
respecting the limit can run higher structural deficits, up to 1 per
cent of GDP.
Countries with deficits above 3 per cent of GDP are to face
sanctions unless a qualified majority of eurozone member states
blocks the move.
The European Court of Justice will police whether nations
implement the budget rule properly and can fine them up to 0.1 per
cent of gross domestic product if they fail to do so.
Only countries that have ratified the treaty will be eligible to
apply for funds from the European Stability Mechanism, the eurozone's
new permanent bailout fund.
