The European Summit which took place in December 2011 in Brussels is perceived as a breakthrough. The 17 countries in the Eurozone agreed to enter into special fiscal agreements, which should lead to more extensive coordination of economic policies and automatic sanctions for breaching budget rules. Great Britain will not participate in this inter-governmental agreement. The remaining countries are taking time to consider the idea.
Sweden and the Czech Republic have both stated that they need a mandate from their parliaments in order to participate in the inter-governmental agreement. The text of the inter-governmental agreement should be ready in March 2012. The Czech Republic will then decide whether or not to join the agreement.
Anticipated contents of the inter-governmental agreement:
- closer coordination of economic policies in areas of common interest
- countries will work over the long term with balanced or surplus budgets - the countries must first enshrine this rule into their laws
- automatic sanctions for governments with deficits exceeding 3% of GDP - the decision may be overturned by a qualified majority of member states
- shifting the date for launching the European Stability Mechanism (ESM) to July 2012 (in lieu of the originally agreed date of 2013) and a change to the method of making decisions within the ESM - a qualified majority instead of unanimity; its maximum amount should be 500 billion euros; the ESM will provide assistance directly to banks.
At the European Summit, the countries also agreed that the IMF will provide 200 billion euros in bilateral loans (of which Eurozone countries will provide 150 billion euros), which the fund will then be able to use to solve the debt crisis. Great Britain has already publicly rejected the IMF loan, and so far the Czech Republic is hesitating about the provision of the anticipated 3.5 billion euros.
Increasing bilateral loans from the IMF represents another attempt by European countries to strengthen the European bailout mechanism and protect it against the escalating Eurozone debt crisis. Since European countries failed to agree on increasing resources in their own rescue fund, the EFSF, which currently has a total amount of 440 billion euros, they are now looking for new ways to reduce the negative effects on bonds in the Eurozone countries and their banking sectors.
Although an additional 200 billion would not be sufficient for potential assistance to countries such as Italy and Spain, the EU hopes that if it proves that it is willing to contribute to its own rescue, other countries such as Russia, China, and the United States, will also provide loans. Only Russia and China have expressed their willingness so far, but both are waiting for details regarding the EU anti-crisis plan. The United States currently opposes the idea of providing loans.
In the past the IMF has always managed to monitor its loans to countries with economic problems - during restructuring of public debts it held the position of senior creditor, meaning that it had a priority right to repayment of its receivables. This is another reason we consider providing a loan corresponding to one tenth of the Czech National Bank's foreign currency reserves rational.
