EU treaty draft spells out escape clause

BRUSSELS – A new EU fiscal treaty will only allow eurozone countries to incur budget deficits during severe economic downturns in the eurozone or other exceptional events, according to a draft of the document obtained by Reuters yesterday.

The document is the latest draft of a treaty to tighten fiscal controls in the eurozone, a move Germany has insisted upon to prevent a repeat of the runaway spending that led to a debt crisis in the 17-country eurozone.In the latest draft, officials spell out more clearly when the eurozone would tolerate a deviation from a budget in balance or in surplus – called the medium-term objective: ‘Temporary deviation from the medium-term objective will only be allowed in cases of [an] unusual event outside the control of the contracting party with a major impact on the financial position of the general government or in periods of severe economic downturn for the euro area, the EU or the concerned contracting party.’The balanced-budget rule, which demands governments balance their budgets over the economic cycle, is central to the new treaty.- Nampa-Reuters