Europe’s historic decision to provide an unprecedented rescue package to combat Europe’s sovereign debt crisis will “reinforce the euro in the face of recent systemic challenges to the Eurozone and Europe,” predicted Olli Rehn, Commissioner, Economic and Monetary Affairs, European Commission, Brussels.
The “consolidation pact” is a two-pronged package: a commitment by EU Member States to take significant measures of fiscal consolidation to reduce debt and a European stabilization mechanism created by the Economic and Finance Council, comprising the economics and finance ministers of the EU’s Member States. “[This will] create a financial backstop for the current crisis and safeguard the economic recovery that is going on in Europe [by creating] preconditions for sustainable economic growth and employment,” added the commissioner.
The biggest issue of concern for most is how the EU got into the position of having to take these measures in the first place. Valdis Dombrovskis, Prime Minister of Latvia, whose country is scheduled to join the Eurozone by 2014, reminded participants that many countries in the Eurozone did not play by the rules laid out in the Maastricht Treaty, whereby government deficits were to not to exceed 3% of GDP. At the same time, control mechanisms, including sanctions, were eliminated in 2003.
“The budget deficit criteria were fine. But most countries do not fulfil the Maastricht criteria. This problem must be addressed before the Eurozone will be a zone of currency stability,” he said. The prime minister was concerned about rumours of the European Commission suspending enlargement of the Eurozone, but said his country still intends to meet the criteria to adopt the euro by the deadline of 2012.