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Czechs join UK on fiscal compact sidelines

Tuesday 31 January 2012 – by Andrew Hickley

Twenty-five of the 27 EU countries have agreed to a new fiscal compact, with the Czech Republic joining the UK in refusing to sign the new agreement.

The treaty, agreed in an informal meeting of European leaders on Monday, will strengthen fiscal discipline across the EU by introducing more automatic sanctions and stricter surveillance of countries that run budget deficits.

The deal will be signed off by leaders in March and will enter into force after 12 of the EU’s member states ratify the agreement in their home country.

“The aim is to incorporate it into EU law within five years of its entry into force,” a statement from the European Council said.

UK Prime Minister David Cameron had shocked leaders when he refused to back the agreement as part of a revised EU treaty during a meeting in December. Cameron had argued that the UK would not receive sufficient safeguards related to the future of the EU’s single market or on financial regulatory reforms impacting on the City of London.

However, on Monday he conceded defeat by allowing the European Court of Justice and the European Commission to impose penalties on countries that have signed the agreement yet continue to run fiscal deficits.

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The move will see the ECJ being able to hit member states with a fine worth 0.1 per cent of their GDP if they run a budget deficit exceeding 0.5 per cent of nominal GDP.

Cameron also said that he would challenge any decisions made by the pair if they threatened to intrude on the functioning of the single market.

“It is in our national interest that the new treaty outside the EU doesn’t encroach on the single market or the things that we care about,” he told a press conference after the meeting.

“That’s the outcome we want to achieve, so we’ll be watching like a hawk.”

If there is any sign that the institutions were intruding on the single market then Britain will “take the appropriate action”, he added.

In a statement on the Czech government’s website, Prime Minister Petr Necas said that the country would not adopt the agreement because of a lack of clarity related to its effective date, given that the country would need a “complicated ratification” of the agreement as it moves towards adopting the euro currency.

Necas also highlighted that the accord will see non-euro countries being unable to participate in all eurozone summits and does not pay enough attention to debt issues, he said.

However he did not rule out adopting the agreement in the future.

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