So what is in the new EU deal?
Q: How will greater fiscal austerity be achieved?
A: All countries that commit to the treaty cannot allow their annual deficits to exceed 0.5 percent of economic output in normal times. That cap can be broken -- and rises to 3 percent -- if there's a recession or other exceptional circumstances.
• There will be automatic penalties for countries whose deficits exceed 3 percent of GDP. In 2010, 23 out of 27 EU states had deficits of more than 3 percent.
• The European Court of Justice will make sure all states play by the rules.
• All states have to tell their partners in advance how much debt they plan to take on through bond sales.
From the Washington Post:
“This new agreement does nothing for the crisis,” said Daniel Gros, the head of the Center for European Studies, a Brussels think tank. “I doubt it will be implemented as planned.” . . .
Even if it goes into effect, countries could just ignore its requirements, which France and Germany did with a similar agreement in 2003, when they successfully lobbied to loosen requirements after economic problems pushed their deficits past the limits.
Nor is it clear that the deal is enough to satisfy demands from the European Central Bank. Bank President Mario Draghi said Friday that he felt the results were positive, but Reuters reported that the bank was instituting a new cap on its current, modest efforts to lower countries’ borrowing costs, citing bank sources. . . .
“Financing government debts by printing money is and will remain prohibited by treaty,” he said. . . .
UPDATE: The impact on stocks from the EU deal isn't as obvious as some claim. British stock rise on news that the UK won't go along with new EU agreement: "U.K. bank stocks rally after Cameron’s opt-out"
Britain’s benchmark index rose and bank stocks rallied Friday after British Prime Minister David Cameron rejected a proposal by European Union leaders for closer fiscal ties.
Shares in Lloyds Banking Group PLC UK:LLOY +6.33% advanced 6.5% and Barclays PLC UK:BARC +4.74% climbed 5.4%. Shares in Royal Bank of Scotland Group PLC UK:RBS +5.11% rose 5.1%.
The FTSE 100 index UK:UKX +0.83% rose 0.8% to 5,529.2.
The benchmark index shed 1.1% in the previous session after the European Central Bank cut interest rates and ECB President Mario Draghi dashed hopes that the institution would ramp up its bond-buying program.
An EU summit ended on Friday with euro-zone leaders agreeing on a new inter-governmental treaty that will lead to closer fiscal union in the region. In a statement, the leaders said that nine countries outside the currency zone — with the exception of Britain — may join them in forging closer fiscal ties.
Earlier on Friday, British Prime Minister David Cameron said he opted out of the treaty because ”it isn’t in Britain’s interest.”
Richard Perry, chief strategist at Central Markets, said Cameron’s decision not to support the treaty change had a positive effect on the financial-services sector.
“The opt-out that Cameron chose to take has meant that a financial transactions tax will not apply to the U.K. now and financial stocks are being buoyed by that,” Perry said. U.K. PM Cameron rejects EU plan. . . .