The conservative German chancellor, Angela Merkel, has insisted that fellow European governments must discipline themselves to limit their budget deficits and the borrowing that finances them. This has been a controversial point in German politics because, with its cash on hand, Germany often has been the source of funds used to bail out Greece and other fiscally wayward governments in southern Europe.
Merkel has been adamant, for example, that until it enacts more budget cutbacks Greece cannot receive the next installment of a rescue package managed by the E.U., the International Monetary Fund and the European Central Bank. Greek officials have been reluctant to go any further in austerity measures, saying the Greek people already have been squeezed to the limit and such services as health care are starting to falter.
Against that background, a suggestion surfaced in Germany last week that the E.U. should send a commissioner to Athens to supervise Greek budgets to make sure the savings imposed by the E.U. are actually carried out. That was quickly dropped, however, after Greek officials complained that their national dignity was at stake, and President Nicolas Sarkozy of France predicted an early accord.
Talks on the rescue package have been under way simultaneously with negotiations on a Greek debt swap under which lending banks and financial institutions would be asked to take at least a 50 percent loss. Those discussions were said last week to be near completion but appeared to snag again over the weekend. Officials said Monday they still hope to wrap up the deal by March 14, when Greece has a large debt repayment coming due.
The E.U treaty’s provisions on deficit and debt limits, according to European economists, have been drawn up as a formula reflecting the relationship between debt and deficit; the smaller the debt, the larger the deficit allowed.
Should a country exceed the limits, Van Rompuy said, an “automatic corrective mechanism” would engage, possibly leading to sanctions such as fines.
Despite the refusal of two countries to sign on, the treaty will enter into force as soon as it is ratified by 12 governments, Van Rompuy said. It was unclear, however, what would happen if other governments are unable to ratify it under their various national procedures.
Ireland has suggested a referendum may be necessary, for instance, and France’s Senate is controlled by Socialists who oppose the treaty. Moreover, Sarkozy’s opponent in a two-round presidential election April 22 and May 6, Francois Hollande of the Socialist Party, has pledged that, if elected, he would repudiate the treaty and demand that it be renegotiated.