EU Leaders Finalise New Treaty On Fiscal Stability

EU leaders of the 17 eurozone countries have finalised a new treaty on stability, coordination and governance in the Economic and Monetary Union which will be signed in March, they said in a statement.

The new treaty is a major step forward to closer and irrevocable fiscal and economic integration and stronger governance in the euro area, said the leaders.

"It will significantly bolster the outlook for fiscal sustainability and euro area sovereign debt and enhance growth," according to the statement.

Another new treaty to establish the European Stability Mechanism is ready for signature and will enter into force in July 2012, making the crisis mechanism permanent and 'contribute to raising confidence, solidarity and financial stability in the euro area.'

"As agreed in December, we will reassess in March the adequacy of resources under the EFSF and ESM," said the leaders.

Concerning Greece, the leaders said they noted progress made in PSI negotiations and urged the Greek authorities and all parties to finalise negotiations on the new program in the coming days.

"We urge our Finance Ministers to take all necessary steps for the implementation of the PSI agreement and the adoption of the new programme...by mid-February," said the leaders, adding that private sector involvement in Greece is an exceptional and unique case.

The leaders welcomed the latest positive reviews of the Irish and Portuguese programmes which concluded that structural benchmarks to reform their economies have been met.

"We will continue to provide support to countries under a programme until they have regained market access, provided they successfully implement their programmes," said EU leaders.

Reforms in Italy and Spain were also welcomed as reinforcing financial stability in those countries as well as the wider euro area.

Europe is mired in a national debt crisis caused by a combination of recession, excessive government debt and spending, and speculation on secondary bond markets. The crisis has damaged banking cash flow and credibility, negatively impacting investment in business and the economy.

The main countries affected by high sovereign debt are Spain, Portugal, Italy, Greece and now Cyprus, which may be forced to enter the EFSF if it cannot get its deficit under control and boost growth and jobs.

The eurozone's answer to the crisis is stricter budgetary monitoring of its member states and legal penalties if budgetary restrictions are breached.

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