The Fiscal Pact … Remember That?

The Financial Times – Ayrault warns EU fiscal pact rebels
The French prime minister has warned dissident left-wing members of the ruling Socialist party and its Green allies against opposing ratification of the EU’s fiscal discipline treaty when it comes before parliament. The government faces an awkward revolt from the left following the president’s decision to accept the new treaty after an EU summit in late June adopted alongside it his demands – for a €120bn package of growth measures and steps towards establishing a eurozone banking union and a financial transaction tax.


Last December the Euro was on the verge of collapsing.  Something big and bold needed to be done.  From that crisis, not to be confused with the many before and after, came the “fiscal pact.”  This was a scheme where governments would coordinate their budgets to reign them in (read: Austerity).

This pact was heralded as a major milestone in European history.  Never before have European countries freely agreed to coordination on this level.  Will school children learn about the fiscal pact like the Renaissance?

In the months since the agreement the fiscal pact has gone nowhere.  Talk of a “growth pact” (the opposite of the fiscal pact … more government spending) has gotten more traction.  Now France is having problems passing the fiscal pact.

This highlights the all too familiar pattern of the European crisis.  When markets slump and things look bad, European leaders will promise anything/everything to stop the decline, no matter how politically distasteful it might be.  Markets then rally on the hope that Europe has turned the corner.  However, these rallies embolden European leaders  to not follow through on the politically difficult promises made at the depth of the crisis.  The markets then fall again on this disappointment until another crisis emerges forcing European leaders to promise something else that will last only until the markets rally once again.

So count the fiscal pact as one of many failed ideas from this crisis.  The Renaissance will stand alone in European history. – Dutch Premier Defends Austerity, Says No to More Greek Aid
Dutch caretaker Prime Minister Mark Rutte, seeking a return to power after Sept. 12 elections, said he would block a third aid package for Greece and defended austerity as the only way out of Europe’s debt crisis. “We’ve helped twice and now it’s up to the Greeks to show that they want to stay within the euro,” Liberal leader Rutte, 45, said in a debate between the four main party leaders in Amsterdam last night broadcast on RTL television. “The Netherlands has been severely hit by the debt crisis and the solution is to lower taxes, get government finances in order and make room for investment.” The Socialists, led by Emile Roemer, have a three-seat lead over Rutte’s party, known in Dutch as the VVD, with enough support for 35 of the 150 seats in parliament, according to a Maurice de Hond poll published yesterday. The survey gave both the Freedom Party and the Labor Party 18 seats. In an Ipsos Synovate poll, published Aug. 24, Rutte’s party led with 34 seats, four more than Roemer’s. It means a third of Dutch voters back the Socialists, who oppose more spending cuts and refuse to hand over more sovereignty to Europe, or the Freedom Party, which seeks an exit from the European Union and the euro. That will make it tough for Rutte, an ally of German Chancellor Angela Merkel in her efforts to stem the crisis, to find support from perhaps three or four parties for a majority in parliament and keep cutting the deficit.

Source: Bianco Research

For more information on this institutional research, please contact:

Max Konzelman

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