EU Leaders Sign Financial Treaty - Article Example

Current Events The article in USA Today by Gabrielle Steinhauser d as “EU Leaders Sign Financial Treaty withnew Budget Discipline” presents a discussion on the signing of a financial treaty within the European Union purposely meant to prevent seventeen member countries from living beyond their means. The fiscal compact, which is the name of the accord with the budget discipline rules, also seeks to bring a closer economic and political integration of the Euro Zone. The article further cites the Czech Republic and Britain as the only non-signatories of the treaty claiming that the move is triggering different concerns over a possible rift in the twenty-seven member European Union (Steinhauser). The article further highlights that there have been other separate treaties for the EU states against the new rules. Consequently, this move bars the new treaty from utilizing some of the institutions of the Union, including the European Commission to implement and monitor the treaty. The article further highlights fears of economists and leaders that the tighter rules may limit government maneuvers in tough economic situations enforcing Germany-style fiscal discipline on countries with completely different cultures and economies. Steinhauser also points out that Ireland pose the greatest threat to the success of the treaty, especially with its decision to hold a public referendum on the ratification of the treaty on Stability, Coordination, and Governance in the Economic and Monetary Union (Steinhauser). From a personal point of view, the treaty is a considerate action based on the European Social model of improving working and living conditions and sustainable economic growth. However, the fact that the treaty imposes a particular form of financial discipline may be unfair, considering that the majority of the countries in the Euro Zone have different economies and cultures. The article in The Economist titled as “A Firewall Full of Holes: The Euro Zone’s Rescue Strategy Still Does Not Add Up” explores the various economic strategies adopted by the European Union to protect the region from future economic slump downs resulting from economic crisis, such as that of 2011. The article highlights the European Central Bank provision of liquidity to banks, the new Euro-Zone tough fiscal rules, the deal of bailing out Greece for the second time, and reforms in Spain and Italy. The economic “firewall” comprises of the son-to-be-introduced European Stability Mechanism, an increase in International Monetary Fund’s resources, and a permanent rescue funds scheme, all focusing on the prevention of another conflagration (The Economist). The article highlights all these arguments as weak, with the exemption of the Long Term Financing Refinancing Operation of ECB, which essentially provides Euro Zone banks with three-year liquidity at one percent against various forms of collateral (The Economist). The article also highlights the problem associated with the plans, including the reinforcement of close links between the health of banks and their sovereign debts resulting from the LTRO. The article proposes a solid firewall plan by suggesting the embracement of a European Redemption Fund by the German Council of Economic Experts. Such a scheme would align all the debts of members of the Euro Zone at above 60% of the GDP allowing these countries to repay back in about twenty-five years. This would prove to be a credible move by G20 members, thus, enabling them to stump up cash donations for IMF resources (The Economist). At the end, the Euro Zone members will be able to create formidable defense against economic crises in the future at an affordable central-bank funds. In his article named “Economy Watch: Is the British Economy Already Back in Recession?” in This is Money Oxlade explores the economic performance of Britain after the recession predicting a possible double-dip recession. He explores past recession recovery with the current economic performance concluding that the current economic conditions do not show any signs of significant recovery. According to Oxlade, the current economic conditions are essentially worse than the three post-depression years in the 1930 Great Depression (Oxlade). He also explores the shapes of economic recovery, highlighting the V-shape, W-shaped, L-shaped, and U-shaped forms, suggesting Britain’s economic recovery will follow the long-term downturn with no recovery as the most likely outcome. In determining the size of Britain’s current economic problem, Oxlade uses “The Ring of Fire” diagram to compare the accumulation of Britain’s debts to other Euro Zone countries, such as Sweden, Germany and Canada (Oxlade). He also presents optimistic and pessimistic reasons for his predication, as well as views of other expert analysts in the economic issues. From a personal perspective it is still early to predict the performance of Britain’s economy considering the fact that there are economic measures still in preparation. Moreover, each economic slump down in history has its own unique characteristics, as well as recovery measures, from the Great Depression to the recent Credit Crunch crisis; thus, predicting performance of the economy based on other economic crises and recovery mechanisms is, perhaps, incorrect. Additionally, the slashing of bank rates from 5% to 0.5% was a major contributing factor to the current recovery status; otherwise, the recession would have had serious profound economic impacts (Oxlade). The article named “Spain Adjusts Deficit-Reduction Target at European Summit” written by Paul Geitner highlights the effects of depression on Spain literary forcing the country to abandon the pre-planned deficit-reduction targets for the rest of the fiscal year. The article analyzes the announcement by Spain’s Prime Minister Mariano Rajoy during the signing of the new fiscal pact advocating for budgetary discipline. Geitner highlights Spain as an example of the impacts of the austerity measures adopted by various Euro Zone states significantly reducing growth and eroding the confidence of G20 members. The initial deficit-reduction plan was to achieve a 4.4 percent of the GDP deficit equivalent but the recession led to increment of the percentage to 8.5 percent (Geitner). In 2009, the EU granted Spain an extra to attain its deficit-reduction target, and the recent announcement could face revoke from the EU Commission that oversees budgetary policies. Moreover, the Euro Zone is advocating for strict rules aimed at preserving the euro currency. The move by Prime Minister Mariano Rajoy was unprofessional and, perhaps, irrational. In normal circumstances, such an issue is presented first as a negotiation with the EU Commission (Geitner). This, in part, is a political misstep, as well as a show of naivety on the part of the leader. Again, the Prime Minister should focus on issues of national interest rather than political considerations. Nonetheless, it is a bold move by the Spanish government to re-adjust their deficit-reduction projections, as the current economic conditions may result in failure of highly set goals. Consequently, the EU Commission will seek explanation in either way. John O’Donnell wrote his article titled as “Pact for Budget Discipline Signed by 25 EU States” to reflect on the signing of the new pact that advocated tough budgetary discipline measures for Euro Zone states. The article highlights the exemption of the Czech Republic and Britain as signatory raising predictions of possible cracks within the Union (O’Donnell). The article specifically cites the new pact as requiring countries within the Euro Zone to incorporate a golden rule that will enhance budget balance into relevant laws or their constitutions, as well as automatic correction mechanisms for any deviations. The article cites the European Council President presenting arguments on the importance of the “self-constrain” regulations, specifically in preventing the occurrence of sovereign debt crisis in the future. The article suggests that a problem may arise from Ireland and France, which are two significant Union members. Ireland has laid a plan to hold a public referendum to determine the ratification of the treaty, while Socialist presidential candidate Francois Hollande promises to advocate amendments to the treaty to include strategies that promote growth (O’Donnell). The treaty may have good intent for the members of the Euro Zone but some of its conditions may result in a lockout of non-committed countries. Additionally, the fact that different countries in the European Union have different economic settings presents a significant challenge to the success of the treaty. Moreover, the condition that ratification by only twelve of the seventeen members will make the fiscal compact legally binding undermines the importance of other EU leaders (O’Donnell). It is unfair to impose provisions on other member states of the Union because they do not embrace the euro as their national currency. Works Cited Geitner, Paul. “Spain Adjusts Deficit-Reduction Target at European Summit.” The New York Times. Web. March 3, 2012. . O’Donnell, John. “Pact for Budget Discipline Signed by 25 EU States.” Yahoo! News. Web. March 2, 2012. . Oxlade, Andrew. “Economy Watch: Is the British Economy Already Back in Recession?” This is Money. Web. March 3, 2012. . Steinhauser, Gabrielle. “EU Leaders Sign Financial Treaty With New Budget Discipline.” USA Today. Web. March 3, 2012. . The Economist. “A Firewall Full of Holes: The Euro Zone’s Rescue Strategy Still Does Not Add Up.” The Economist. Web. March 3, 2012. . Read More