Seamus Coffey: This Treaty won't stop governments spending, despite what the No alarmists say
THE Fiscal Compact is an attempt to ensure greater compliance with an existing set of EU budgetary rules. The deficit and debt rules that are in the Treaty are already in place and the result of the referendum cannot alter our obligation to adhere to them. The purpose of the Treaty is to try and establish some national responsibility for enforcing and monitoring the rules, rather than having this happen only at EU level.
It should be noted that apart from Greece, and to a lesser extent Italy, a failure to adhere to fiscal rules was not a key cause of the eurozone crisis. The leniency has however had an limiting effect on the response to the crisis. The Treaty does little to address the current crisis but it may offer some benefits in dealing with, or even preventing, the next.
In the run-up to the crisis the eurozone ran an aggregate deficit of around 2.5% of GDP and had a relatively stable level of government debt at around 70% of eurozone GDP. Neither of these would be considered unsafe levels but as the deficits persisted in a relatively benign economic environment, the deficits were the result of political decisions and would be termed as structural or more loosely permanent deficits.