European leaders meeting in Brussels have agreed on strengthening budgetary discpline and limiting debt to help surmount the debt crisis and ensure longterm stability. On Friday, 25 heads of state and government signed the fiscal pact that had been hammered out over the past several months.

Chancellor Merkel signs the Treaty on Stability, Coordination and Governance in Brussels on March 2. Next to her is Danish Prime Minister Helle Thorning Schmidt. (© picture alliance / dpa)

It marks a “milestone in the history of the European Union,” Chancellor Angela Merkel said. The European Council of heads of state and government have opened a new chapter in overcoming the crisis, the Chancellor said. For the first time that which had been agreed upon in the existing Stabiltiy and Growth Pact is being implemented, she said.
The fiscal pact obligates the EU members states to save, to incorporate a “balanced budget rule” in national legislation and introduces stronger budget controls, including a debt brake, to be monitored through the European Commission.  Further, the EU Court of Justice will be able to verify whether states are implementing the debt brake correctly and issue penalties if necessary.
“That is a strong signal that we have learned the lessons of the crisis,” Chancellor Merkel said.
Leaders from 25 of 27 EU members states signed the Treaty on Stability, Coordination and
Governance, the fiscal pact, on the margins of the EU Summit on March 2. Great Britain and the Czech Republic did not participate. It is to go into effect at the beginning of 2013, once 12 of the 17 eurozone states have ratified the treaty. The treaty will only apply to states that use the euro, unless states “declare their intention to be bound by certain provisions at an earlier date,” according to a Council press release.

The euro (© picture alliance / Daniel Karman)

The fiscal pact is an important step in restoring confidence the Economic and Monetary Union, Council President Herman Van Rompuy said during the signing ceremony. “The restoration of confidence in the future of the Eurozone will lead to economic growth and jobs. This is our ultimate objective. The targets on deficits and debts are intermediate targets, no aim in itself.”
Also in Brussels, the eurozone heads of state and government agreed to accelerate capital payments into the ESM (European Stability Mechanism). Two tranches are to paid in 2012. Only countries that have ratified the fiscal pact can make use of the ESM. An increase in the overall ceiling of the ESM was not agreed on.
On Greece, the eurozone leaders welcomed the agreement reached on the second aid package, the aim of which is to put the Greek economy back on a sustainable footing, to ensure debt sustainability and restore competitiveness. With the necessary legislative action taken by Greece, the program can be formally adopted in the coming days.