As the economist James Meadway explains:
Strip away the eurojargon, and the EU’s fiscal compact is a despairing embrace of terminal decline. Austerity will now carry the force of law. Forget democracy, as Angela Merkel sternly warns, the European Court of Justice will now determine economic policies, and “Never will you be able to change them through a parliamentary majority.”
Southern Europe is being torn apart by the austerity programmes. There are simply no realistic prospects for recovery while the cuts are being applied. A fatal mechanism is at work: cuts reduce demand. Falling demand means firms selling less. Firms selling less means falling wages and rising unemployment, further reducing demand. This is the vicious circle Europe is locking itself into.
Elsewhere, FT columnist Wolfgang Munchau – no bleeding-heart Keynesian – has described the treaty as “quite mad”. He’s too generous: it is wholly lunatic, economic folly on a grand, continent-wide scale. Austerity is driving Europe into a state of permanent stagnation. The crisis was not provoked by public spending, but by the collapse of the banking system and persistent trade imbalances. And yet the whole argument, at least for Europe’s elites, is framed around the need for sharper and sharper spending cuts. The diagnosis is wrong, and the prescription actively dangerous. Voluntarily agreeing to it, as the 25 treaty signatories have, is suicidal.
Poland went to the negotiations in Brussels yesterday with the aim of ensuring that the French position of restricting the pact to the eurozone countries was defeated. This was a clear and (leaving aside the details of the pact) principled position, which sought to make sure that Poland remained at the centre of decision making inside the EU.
What the Polish delegation achieved were assurances that it and other non-eurozone member states will be allowed to attend summits at least once a year that discuss the "architecture" of the euro zone and competitiveness. Such countries will not be able to vote and will be left outside the other meetings held by members of the eurozone.
While the Czechs decided to join the British in standing outside of the fiscal pact (for similar Thatcherite eurosceptic reasons given by David Cameron) Poland has signed up to the agreement. It was unsatisfactory – declared Tusk who had previously threatened not to sign the agreement – but it was the best that could be achieved.
Fortunately non-eurozone countries will not be subject to the sanctions written into the Pact for countries that break its fiscal rules. For this reason alone, the fact that Poland is not fully integrated into current economic decision making brings it some benefits.