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| Europe’s Financial Stablity |
| (2012-06-14) |
| Last updated: 2012-06-15 14:45 EET |
Romania has long been a signatory of the Fiscal Pact that administers European finances. A day after the Romanian Parliament had ratified the treaty regarding stability, coordination and governance in the Economic and Monetary Union, Romanian President Traian Basescu promulgated the respective law. Although not a part of the Eurozone, within which the sovereign debt crisis has erupted, Romania joined the fiscal pact, intent on contributing to European consolidation, as President Traian Basescu recently pointed out.
Signed on March 2nd, in Brussels, the fate of the document exclusively hinges on the way Eurozone states will handle it. The treaty has yet to be ratified by at least 12 Eurozone states, in order to come into force at the beginning of next year. This basically translates as a stability mechanism of the Eurozone, providing for a 3% limit for the budget deficit and a percentage for the structural deficit, if the level of public debt stands far below 60% of the GDP.
Any breaches of the deficit levels will instantly trigger a correction mechanism, which every member state should insert into their national legislation, as was the “golden rule” regarding the limits on structural deficit. If a member state does not introduce these provisions in its legislation, it is indictable and can be brought before the Court of Justice of the European Union. Such a fiscal pact, adopted by Eurozone countries, has emerged as a reaction to the acute debt crisis in Greece.
This crisis risks spilling over into others states. Until now, Greece, Portugal, Ireland and most recently Spain have resorted to external financial aid, because of sovereign debts and difficult access to financial markets. Quite a few economists are pessimistic; however, as they predict that the current crisis will naturally knock down the next domino piece, that is Italy. The economies of Southern European states are crumbling, while the market’s interest in their debt is rapidly disappearing, economists say.
Moody’s has downgraded Spain’s credit rating, due to its very limited access to capital markets and the challenging economic situation. According to the agency, the bailout plan requested by the government in Madrid, worth 100 bn euros, will increase the already hefty burden of the sovereign debt. Banks in Cyprus have also been downgraded. The reason – Greece’s increased risk of exiting the Eurozone may lead to a bank run in Greek subsidies of Cyprus banks. This could put pressure on liquidities.
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