EU leaders met in Brussels today for the second day of their EU summit.
All 17 eurozone leaders and 8 non-euro EU leaders signed the fiscal compact (pdf) that they first discussed in December–a plan that would impose sanctions on countries with deficits exceeding 3% of GDP per year and requires countries to bring debt-to-GDP ratios down to 60%.
However ratification of this new Treaty is not to be taken for granted, as each signatory will have to ratify the agreement at home. If this happens, then the agreement will go into effect on January 1, 2013.
However, the bigger issue right now is the European Stability Mechanism–the permanent European bailout fund that currently has a capacity of 500 billion euros ($665 billion). Many leaders have called for the fund’s capacity to be increased–generally by running the fund in tandem with the European Financial Stability Facility (the fund already in place).
While Germany is now spearheading the effort to make the ESM go into effect sooner, it has vehemently opposed any proposals to expand the fund’s capacity. Meanwhile, Eurogroup president Jean-Claude Juncker said that the IMF will only agree to increase its participation in the European stability effort if leaders can agree to expand the size of the bailout fund firewalls.
By the end of the summit, EU leaders had made little progress on actually expanding the funding available to construct a firewall around vulnerable eurozone economies, but promised that finance ministers would address the issue later in March.