In their meeting last Monday, German Chancellor Angela Merkel and French President Nicolas Sarkozy proposed automatic sanctions on countries in the euro zone that have fiscal deficits of more than 3% of their gross domestic product (GDP). Which are these countries?

French President Nicolas Sarkozy (L) and German Chancellor Angela Merkel. Photo: Reuters

Sarkozy had also said that while he would like the new treaty to be adopted by all the 27 European Union member states, if not he would be quite happy for it to be adopted by the 17 countries that use the euro. That was perhaps a reference to the UK, which, according to the OECD data, is projected to have a fiscal deficit of 9.4% this year, to be trimmed to 7.4% by 2013.

The question, however, is: What would the fiscal compression do to growth in the euro area? Contrast the US, whose deficit, as per OECD, is projected at 8.3% in 2013.

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