Handing a PR victory to German Chancellor Angela Merkel, every European Union country, save for Britain and the Czech Republic, agreed to sign a new treaty designed to curb overspending and resolve the bloc's staggering debt crisis Monday. Unfortunately, the treaty left a number of looming economic problems on the table. Here are the main ones:
Economic growth: The European leaders are stuck in a kind of Catch-22. "While they have to slash their deficits to reassure investors reluctant to lend to them, the debt crisis has also hammered the so-called 'real economy,' sending unemployment soaring,' reports the Associated Press. "Many analysts, politicians and trade unions think that only government spending can restart growth." A few bleak numbers: 23 million people are unemployed in the EU; Spanish unemployment is at 23 percent and 50 percent for those under 25; and France just had to revise its growth forecast from 1 percent to .5 percent.
Overspending: You might think that a pact to clamp down on overspending would help with overspending but as The Washington Post notes, Europe already has one in place. Despite the fact that the Stability and Growth Pact has been in place since 2000, "only three of the 17 countries — Estonia, Luxembourg and Finland — managed to keep annual deficits under 3 percent before the crisis. (Note that even Germany was an offender.)" This time around, "loose language" will be baked into the national constitutions declaring each nation's intentions to keep their fiscal houses in order. The toughest aspect of enforcement is the penalty for breaking the rules: up to 0.1 percent GDP. However, "draft texts of the fiscal compact suggested that Italy had won its battle to restrict the scope of the fiscal compact, which calls for making it easier to impose sanctions against countries that break E.U. budget rules," reports The Times. " The text said the sanctions would make it harder to block sanctions against countries that exceed annual deficit targets but that the same tough system would not apply to nations with excessive overall debt, like Italy."
A bailout fund: One of the stabilizing forces many hoped European leaders would flesh out was the terms of a bailout fund to shore up troubled countries. "Though European leaders were due to sign off on a deal to bring a permanent bailout fund into existence earlier than previously foreseen, they postponed any final decisions on how big it will be and where all the money for it will come from," reports The New York Times. "The International Monetary Fund, among others, has been pressing Europe to commit enough funds to provide a credible backstop that would insure that Italy and Spain could pay their bills and continue to finance their debts."