Europe's fiscal treaty, or budget 'golden rules'

The new fiscal treaty for most EU countries, held up awaiting a ruling on its legality by Germany's Constitutional Court on Wednesday, aims to reinforce budgetary discipline in the wake of the debt crisis. Signed by 25 European Union states -- the Czech Republic and Britain remained outside -- the treaty was demanded by Germany as the price of financial solidarity with debt-laden eurozone partners and will introduce "golden rules" making balanced budgets mandatory. Here are the main points of the Treaty on Stability, Co-ordination and Governance: -- The 'Golden Rule' Countries that ratify commit to balanced budgets, ideally in surplus over the course of economic cycles. The structural deficit, which strips out one-off effects such as debt repayments and the economic cycle, should be capped at 0.5 percent of gross domestic product. Countries with debts comfortably below the 60-percent-of-GDP EU threshold will get more leeway, up to 1.0 percent of GDP for the structural deficit. -- Automatic correction Each state must ensure that "automatic consequences" brakes are triggered when this goal is missed by too great a margin, and action takes place within a certain timeframe. -- Rule enshrined, if possible, in constitutions The treaty asks states to insert the new rules "preferably" into their constitutions. Germany backed down on initial constitutional insistence when it became apparent that a series of referendums could torpedo the agreement. Instead, the debt brake takes effect "at the latest one year after the entry into force of this Treaty through provisions of binding force and permanent character." -- Court supervision The European Court of Justice will verify that countries adopting the treaty have delivered on their legal commitments at national level and under set criteria. Where this is not the case, a state could be taken to the court by peers and, in the ultimate sanction, face an EU fine amounting to 0.1 percent of GDP. -- Near-automatic sanctions for excessive deficits The annual public deficit limit will remain at 3.0-percent of GDP, as enshrined in the long-standing European Union Stability and Growth Pact (SGP). If the executive European Commission deems a state to have violated this ceiling, there is a risk of financial penalties. Imposition of these sanctions will be harder to wriggle out of than at present with a qualified majority of states needed to stop the fine. Such a vote is difficult to obtain. -- Eurozone summits At least two summits per year are envisaged purely for eurozone states, with non-euro pact signatories invited "at least" once per year. -- Entry into force The inter-governmental treaty will not enter into force before January 1, 2013, but already countries need to have ratified it in order to be eligible for assistance from the European Stability Mechanism (ESM), an emergency fund of some 500 billion euros ($643 billion). -- Growth appendix Three measures designed to act as levers towards growth were agreed at a June summit of EU leaders: a recapitalisation of the European Investment Bank, where a capital injection of 10 billion euros should translate into 60-billion-worth of lending to boost innovation, enterprise and energy efficiency; the issuance of up to 5.0 billion euros of new joint "project bonds," again expected to be leveraged up into many times more to invest in cross-border energy, transport and digital infrastructure; and the re-allocation of 55 billion euros' worth of unspent EU grants to states.