Fiscal treaty seen as not a cure-all

Leaders of France and Germany warned the debt crisis in Europe was not yet contained, and Spain, on cue, said this week it would miss a key financial target. A treaty signed by 25 of 27 EU countries this week is intended to tighten fiscal discipline among the capitals of Europe so the continent can avoid another debt crisis that has threatened to spin out of control for two years. It needs to be ratified by at least 12 of 17 national parliaments to take effect. It mandates member states pass balanced budget amendments and adhere to them or the European Commission will put restrictions on the discretionary spending by countries that cross the line. Still, "It is not a 100 percent guarantee," The New York Times Saturday quoted French President Nicolas Sarkozy as saying. "We are not living in ordinary times; we are in a fragile situation," said German Chancellor Angela Merkel. Right on cue, Spain's Prime Minister Mario Rajoy announced Madrid would fall short of fiscal targets set for this year. Rajoy said the government would abandon the goal of bringing the public deficit down to 4.4 percent of the gross domestic product this year and, instead, aim for a reduction to 5.8 percent. Rajoy said the government would still hit the target of reducing the deficit to 3 percent of GDP by 2013. The announcement rattled some European leaders because it was made unilaterally, the Times said. An official not authorized to speak on the matter called Rajoy "a bit inexperienced." Embarrassment aside, the failure of Spain to hit this year's targets highlights the problem of having struggling countries pass austerity budgets, when they could just as well be passing stimulus packages to get their economies on track again. Spain is a case in point. With unemployment near 20 percent, many governments would pump money into the economy, rather than cut back on spending and lay off government workers.