Wall Street Journal
January 30, 2012
As German Chancellor Angela Merkel sees it, Europe's new "fiscal compact" on budget discipline will turn the euro zone into a more-perfect currency union.
Critics see it as a distraction from the real roots of Europe's debt crisis, and as a straitjacket that will condemn Europe to eternal austerity and stagnation.
Most likely, it will do neither. The proposed treaty doesn't overcome doubts about the euro zone's long-term viability and membership, and its constraints on government budgets aren't as tough as they appear at first glance.
The treaty, which is due to be formally signed in early March by leaders of euro-zone countries and any other European Union nations that want to take part, obliges governments to balance their budgets and reduce public debt. So-called structural budget deficits, adjusted for economic up- and downturns, are to be capped at 0.5% of gross domestic product. Euro members have to write that rule into their national laws or constitutions, or else EU judges can fine them.