EU leaders agree on control of Govt. budget deficits and joint eurozone policy reforms. See joint statement

European Union leaders have agreed on new fiscal rules, controlled Government deficits and joint eurozone economic policies in their first meeting at the EU Summit that started in Brussels yesterday (December 8). They issued a seven-page joint declaration, which highlights a fiscal stability union in the eurozone, that should be achieved through the enhanced Stability and Growth Pact, the implementation of the European Semester starting this month, the new macro-economic imbalances procedure, and the Euro Plus Pact.

The new fiscal rule in the EU means that general government budgets will be balanced or in surplus. This will be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5 percent of nominal GDP. The rule will also be introduced in national legislation, being defined by each member state based on principles proposed by the Commission. Member states will converge towards the reference level based on a calendar proposed by the Commission, the document also reads.

Countries who have deficits will submit partnership programs detailing how they plan to ensure the correction of deficits. The Commission and the Council will monitor the implementation of these plans. "It means: we all commit to a new European strong fiscal rule. It means: Member States will transpose it into their constitution or equivalent. It means: reinforcing our rules on excessive deficit procedure by making them more automatic. It also means that Member States will have to submit their draft budgetary plans to the Commission," said Herman Van Rompuy, President of the European Council. Read his statement here. The EU will also create a mechanism for countries to report their national debt issuance plans in advance. The rules governing the Excessive Deficit Procedure will be reinforced for eurozone member states. As soon as a country breaches the 3 percent ceiling by the Commission, it will be sanctioned, unless a qualified majority of eurozone countries opposes the sanctions. EU leaders also agreed on creating a procedure that will ensure all major economic policy reforms planned by eurozone countries will be discussed and coordinated in the eurozone, with a view to benchmarking best practices. Moreover, regular Euro Summits will be held at least twice a year. It has also been agreed that the European Stability Mechanism(ESM) treaty will enter into force as soon as Member States representing 90 percent of the capital commitments have ratified it, with a target in July 2012. Read the full statement