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For bailout nations, new EU treaty is high price to pay

A new EU fiscal treaty could help keep national governments from overspending. But for EU nations already receiving bailouts, its conditions would be a big blow to their economies and national pride.

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German Chancellor Angela Merkel called the agreement "a great leap" toward financial and political stability for the EU. The Wall Street Journal quoted French President Nicolas Sarkozy saying: " We're turning the page on the financial crisis.... The strategy we've implemented is bearing fruit."

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The fiscal compact envisages the introduction of constant consultations between affected countries and the European Commission, the EU's executive body, even before necessary austerity measures are adopted. Eurozone countries would be responsible to provide all required information to the EU.

Under the new rules, EU regulators would “gain additional powers to seek banking data and order financial-system stress tests,” Bloomberg reports. Stress tests aim to assess the resilience of the banking sector in potential financial or economic crises. 

The commission would also be able to penalize bailed-out states that failed to rein in their budgets, by suspending payments and earmarked European funds. In the latest sign of Europe’s institutional transformation, the commission has threatened the unprecedented step of blocking Hungary’s €495 million ($657 million) in allocated funds for failing to control its excessive budget deficit.

The decision is an “incentive to correct a deviation, not a punishment,” said Olli Rehn, the European commissioner for economic and monetary affairs, the newspaper EuropeanVoice reports.

Member states that have received bailouts “would remain under this hyper-surveillance regime until they have paid back at least three-quarters of the money lent to them,” according to EUobserver.  

Although there are critics who think these measures will deprive countries from making independent decisions, unexpected support came from Europe’s southern flank, Greece. “I am in favor of having countries lose their sovereignty,” said Theodoros Pagalos, the Greek deputy prime minister, according to Greek newspaper Protothema last week. “I’ve always said I was European, and even in favor of federalism.”

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