Europe signs up to German-led fiscal pact

Mon Jan 30, 2012 6:41pm EST
 
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By Julien Toyer and Paul Taylor

BRUSSELS (Reuters) - Chancellor Angela Merkel cemented her political ascendancy in Europe on Monday when 25 out of 27 EU states agreed to a German-inspired pact for stricter budget discipline, even as they struggled to rekindle growth from the ashes of austerity.

Only Britain and the Czech Republic refused to sign a fiscal compact in March that will impose quasi-automatic sanctions on countries that breach European Union budget deficit limits and will enshrine balanced budget rules in national law.

The accord was eagerly greeted by the European Central Bank which has long pressed euro zone governments to put their houses in order.

"It is the first step towards a fiscal union. It certainly will strengthen confidence in the euro area," ECB President Mario Draghi said.

Officially, the half-day summit focused mainly on a strategy to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.

But differences over the limits of austerity, and Greece's unfinished debt restructuring negotiations, hampered efforts to convey a more optimistic message that Europe is getting on top of its debt crisis.

Merkel told a news conference the agreements on the fiscal pact and a permanent rescue fund for the euro zone were a "small but fine step on the path to restoring confidence."

French President Nicolas Sarkozy said he expected a deal on reducing Greece's debt to private bondholders within days and he believed independent European institutions - a clear reference to the ECB - would help meet a funding gap.   Continued...

 
<p>Germany's Chancellor Angela Merkel meets with France's President Nicolas Sarkozy and Italy's Prime Minister Mario Monti shortly before an informal meeting of the European Council ahead of the European Union leaders summit in Brussels January 30, 2012. REUTERS/Bundesregierung/Jesco Denzel/Pool</p>