Enlarge image (© picture alliance / dpa) The budgets of eurozone states must be set on solid footing quickly, Chancellor Angela Merkel said, responding to the recent downgrading of the credit ratings of numerous eurozone states by a ratings agency. The eurozone states are now called on to implement the fiscal package swiftly, Merkel emphasized. The package must not be softened “here and there.” The decision by the ratings agency has made clear that Europe still has a long road ahead before investor confidence is restored.

The right steps, however, have been agreed on and embarked upon, Merkel said. Now the brakes on growth must be loosened. The planned introduction of brakes on debt in all states will not fall short of their impact. Moreover the European Stability Mechanism (ESM) must be made ready to implement as quickly as is possible, Merkel said. This is also important for investor confidence.

German EFSF guarantees sufficient

Enlarge image (© picture alliance / Sven Simon) The German guarantee for the European Financial Stability Facility (EFSF) of up to 221 billion euros is fully sufficient, German Finance Minister Wolfgang Schäuble said after the decision by the ratings agency. Moreover, the EFSF already had to pay slightly higher interest in the last auctions, which was not necessarily related to the rating. For the obligations that the EFSF has in the next few months, the guarantee amount is by far sufficient.

The fiscal policy pact

At the European Council on December 8 and 9, 2011, the heads of state and government of the 17 eurozone states agreed to enter into a fiscal union. The participants want to go beyond the stability rules that are already codified in EU regulations. These additional measures are to ensure reduction of debt. They address common regulations for financial policy so that the common monetary policy is accompanied by a common discipline in national budget policy. They also address ways to for the euro states to improve their competitiveness.

• In light of the continuing challenges, the heads of the EU states will meet as often as is necessary.
• All states are to introduce a legal cap on new debt, preferably enshrined in the constitution, with a view to balancing public budgets. A budget will be deemed to be balanced if the deficit does not exceed 0.5 percent of the GDP of the country in question. The Court of Justice will be entitled to review the correct translation of the European debt cap into national law.
• In future the EU will automatically be able to impose sanctions on countries with excessively high budget deficits. Only a qualified majority of the euro-zone states will be able to vote to prevent sanctions. A reverse qualified majority thus applies.
• Countries with excessively high debt levels are to enter into legally binding reform agreements with the European Commission.