The new rules by EU leaders
YESTERDAY'S agreement includes many measures which will force all members of the eurozone to spend less than they earn but it also bolsters the various rescue funds which can be used to prop up countries in trouble.
Countries which fail to control spending will eventually lose control of their own budgets although there is some wriggle room.
In a defeat for Germany, banks which lent money to countries in trouble won't get burned in 2013.
Fears about huge writedowns were one of the reasons that investors in bonds have been reluctant to buy Italian, Spanish and French bonds in recent months.
EU leaders agreed the following in a bid to rescue the euro:
• Stronger coordination and supervision of economic policies. This will mean that old-style Budgets, like last week's, are a thing of the past. Brussels will play a bigger role in the lead-up to the Budget -- similar to the situation under the bailout.
• All eurozone states' budgets should be balanced or in surplus. Governments can't spend more than they are bringing in any more. As a rule, the annual structural deficit can't exceed 0.5pc of gross domestic product.
• The rule will be copper-fastened in eurozone member states' own national legal systems; they must also report plans for bond sales and other borrowing in advance. The Attorney General will advise the Government on whether we need a referendum.
• As soon as a euro member state is in breach of the 3pc deficit ceiling, there will be automatic penalties, including possible sanctions, unless a qualified majority of euro states is opposed to such action being taken.
• Countries will be given differing deadlines to bring their finances under control.
• The changes will be made by an inter-governmental agreement rather than a formal treaty. That's because Britain wants to opt out. A treaty needs the agreement of all member states.
• Technical talks have begun to find a mechanism to reduce the interest on debt worth €63bn which was borrowed before last year's bailout. There is no guarantee of success but an agreement would be a big boost to Ireland's economic prospects and the amount of austerity to be endured in future.
• The eurozone's permanent bailout fund, the European Stability Mechanism (ESM), is expected to come into force in July 2012; the existing European Financial Stability Facility (EFSF) will remain active until mid-2013. The overall pot of funds for the EFSF/ESM of €500bn will be reviewed in March 2012. Ireland will contribute €250m.
• Euro-area and other EU states will confirm within 10 days the provision of funds to the IMF of up to €200bn in the form of bilateral loans to help it deal with the crisis. Ireland won't contribute.
• Voting rules in the permanent bailout fund will be changed to allow decisions by qualified majority of 85pc in emergencies, although that is subject to confirmation by the Finnish parliament.