Luxembourg Gives Green Light To Fiscal Compact

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 Luxembourg has recently ratified the "fiscal compact", aimed at strengthening fiscal discipline and introducing stricter surveillance within the euro area, especially by establishing a "balanced budget rule."
 Luxembourg's Chamber of Deputies adopted the bill approving the Treaty on Stability, Coordination and Governance within the Economic and Monetary Union (EMU) by 46 votes to 10.
 In Brussels on March 2 was signed the treaty by 25 European Union member states, with the exception of the Czech Republic and the UK. This treaty is intended to maintain stability in the euro zone as a whole by compelling  contracting parties to preserve healthy and sustainable public finances by adhering to specific regulations to prevent excessive deficits.
 The main elements of the so-called "fiscal compact" include a requirement for national budgets to be in balance or in surplus, a criterion that would be met if the annual structural government deficit does not exceed 0,5% of gross domestic product at market prices.
 Under the terms of the agreement, this balanced budget rule must be incorporated into member states' national legal systems, preferably at constitutional level, within one year after entry into force of the treaty. In the event of deviation from this rule, an automatic correction mechanism will be triggered, defined by each member state on the basis of principles proposed by the European Commission.
 The European Union Court of Justice will be able to verify national transposition of the balanced budget rule. Its decision is binding, and can be followed up with a penalty of up to 0,1% of GDP, payable to the European Stability Mechanism in the case of euro area member states.
 The signed treaty also strengthens fiscal rules for the euro area by incorporating a commitment on the part of the contracting parties whose currency is the euro, to adopt Council decisions in the framework of the excessive  deficit procedure unless opposed by a qualified majority.
 The treaty also contains provisions on the coordination and convergence of member states' economic policies and on governance of the euro area. In particular, euro summit meetings will take place at least twice a year.
 As of March 1,2013, any granting of financial assistance under the ESM will be conditional on ratification of the treaty and transposition of the balanced budget rule into national legislation "in due time." The provisions of the new treaty are to be incorporated into the legal framework of the EU within five years of the treaty's entry into force. 
 The fiscal compact will be legally binding as an international agreement and will enter into force following ratification by at least 12 euro area member states. It will only apply to those contracting parties whose currency is the euro, while the others will be bound by its provisions once they adopt the euro, unless they declare their intention to be bound by certain provisions at an earlier date.