European Debt Crisis

Most euro leaders agree on plan for fiscal austerity

Steve Chiotakis Dec 9, 2011

Steve Chiotakis: Twenty-three of 27 countries in the European Union have agreed to a new treaty that would enforce strict budget rules among those countries. Every nation that uses the euro currency voted in favor. But four EU members that don’t — Sweden, the Czech Republic, Hungary and Britain — didn’t go along with the plan.

Holger Schmieding is chief economist at the German bank Berenberg. He’s with us from London. Hey there.

Holger Schmieding: Good morning.

Chiotakis: I know 23 out of the 27 countries in the EU — do we have a deal, does that make a deal?

Schmieding: Yes, we do have a deal. We will have a much better fiscal straitjacket in the eurozone, and a few other European countries, in the future. We will have what is close to a balanced budget ammendment to the constitution of these countries. Britain has decided to be outside of it.

Chiotakis: What was Britain’s beef? Why were they not a part of this deal?

Schmieding: A. They don’t really like fiscal austerity much, and B. they wanted to get powers back from Brussels. So they said, if we change the European treaties to allow for a better fiscal straitjacket, then at the same time, we want other things in Europe to be changed. And to that, the rest of Europe said no. So now we don’t have a change to the normal European treaty, we have a new treaty between this coalition of willing.

Chiotakis: Is that straitjacket, if you will, hold strong enough, do you think, even without Britain and those other countries?

Schmieding: That straitjacket is strong enough. It will mean that in the future, fiscal policy on the European continent is much better than before. There will only be modest fiscal deficits; it’s a balanced budget to the constitution, you could say, of the European continent.

Chiotakis: Holger Schmieding, chief economist over at Berenberg. Holger, thank you.

Schmieding: You’re welcome.

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