Legal Loopholes: Critics Question Merkel's Fiscal Pact Proposal

Spiegel
January 27, 2012

It's German Chancellor Angela Merkel's pet project -- a new European Union fiscal pact to ensure members' budgetary discipline through stricter controls. But European legal experts have doubts about its viability, while critics say there are more important issues at hand.

The final decision is planned for the next European Union summit on Monday. There leaders from 26 of the 27 member states plan to finalize the new fiscal pact, the agreement pushed hard by Chancellor Angela Merkel requiring signatories to adhere to strict fiscal policy guidelines.

They are, by all accounts, rules that are long overdue. After all, the original common currency agreement, the Maastricht treaty, was signed 20 years ago. Now, it is to be given teeth. Or is it?

Because Chancellor Angela Merkel pushed the reform through almost entirely on her own, the new accord reflects a number of German suggestions. Each country that signs must introduce legal limits on budget deficits -- a so-called debt brake. If they exceed the structural debt limit of 0.5 percent of gross domestic product (GDP), the debt brake mechanism will automatically go into effect, and they will face fines from the European Court of Justice.

But the high expectations awakened by Merkel are unlikely to be fulfilled. Several elements in the agreement are of questionable legality. It can't be written as an EU treaty because Great Britain won't sign it, which means it will only be an "inter-governmental agreement" between the 17 euro-zone countries and a handful of other countries participating voluntarily.

It's turning out to be a big handicap. On the one hand, the European Commission's hands are tied, because it can only act on behalf of all 27 EU members. Despite Merkel's wish, the Commission cannot legally take those that violate budgetary rules to the European Court of Justice. According to the fiscal pact proposal, national governments can only do this among themselves. But no country has ever taken legal action against another in EU history. Such a case would be seen as a gross violation of diplomatic etiquette.

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