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BRUSSELS (MarketWatch) — As Europe’s self-imposed deadline draws near for producing a new treaty meant to quell a stubborn debt crisis, concerns are growing that agreement on the new pact is out of reach and that even if passed the deal is so flawed that it may make things worse.

Some worry that the new deal, calling for more budgetary austerity, threatens to give Germany too much power in the European Union. Some economists warn the fiscal tightness the treaty requires are inappropriate during a downturn because they could stifle growth. Some even question whether this new agreement is necessary at all because most of what it calls for is already enshrined in EU law.

Agreed at a European summit on Dec. 9, the first draft of the pact was released in mid-December by European Council President Herman Van Rompuy. The EU member states will now weigh in.

The goal is to come up with a final draft by the end of January and have leaders sign it at the beginning of March. Leaders of the euro zone have said they hope the new pact will bring the bloc’s economies more closely in line and prevent future debt crises. They also hope the deal will instill confidence in investors and help bring down stubbornly high borrowing costs in Italy and Spain which are fighting to avoid defaulting on their high debt.

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The eight-page document requires countries to run budgets that are balanced or in surplus. The draft says member states can “may temporarily incur deficits only to take into account the budgetary impact of the economic cycle and, beyond such impact, in case of exceptional economic circumstances, or in periods of a severe economic downturn, provided that this does not endanger budgetary sustainability in medium term.”

The document also calls for nearly automatic penalties for non-compliant governments.

The member states will have to include these rules in their national constitutions. Countries outside the 17-member euro area do not have to comply with the treaty until they adopt the euro.

While most nations outside the euro zone have expressed varying degrees of support for the deal, Britain has opted out. As a result, the pact is intergovernmental, meaning member states will police it and bring each other to court over failure to comply with the rules.

“I think it will be extremely important that all euro zone countries should ratify the new treaty,” said Zsolt Darvas, an economist with the Brussels think-tank Bruegel, explaining that this will help ease market concerns. “The potential impact of not ratifying it would be huge.”

But the draft of the treaty stipulates that it is enough for nine euro zone countries to approve it in order for it to come into force. The idea is that one veto should not derail the whole pact.

Dangerous precedent

However, allowing only nine countries to go ahead with a treaty would set a dangerous precedent, threatening to give too much power to France and Germany, said Stefano Micossi, director general of Assonime, an Italian association providing research on economics.

“What if tomorrow madame Merkel and monsieur Sarkozy decide to use this to change labor laws with majority voting?” Micossi said. “It’s not good even for Germany. In the end, there will be a political backlash against Germany. The common policies cannot be dictated by France and Germany.

“We cannot every week have a new treaty to appease German public opinion,” Micossi added, referring to polls showing public opinion in Germany, the biggest economy in the EU and therefore the biggest contributor to the bloc’s budget, is increasingly opposed to paying more money to help troubled countries such as Greece and Portugal.

The content of the new treaty is also causing concern.

“At this moment, it doesn’t make much sense to frighten countries with more sanctions,” said Darvas. “These measures would be useful, let’s say, five years from now,” he added, explaining that although low public debt is always desirable, tight policies could stifle growth and are therefore more appropriate during times of economic expansion.

“My concern is that we are […] concentrating on the wrong problem,” Micossi said, calling the pact “a diversion.”

“This approach is based on the mistaken premise that behind the contagion is budgetary discipline,” Micossi said. Instead, he explained, the EU’s biggest problem now is insufficient liquidity and the markets’ lack of confidence in the bloc’s ability to tackle the crisis.

Many also point out that the new pact fails to address the root cause of the turmoil — excessive bank lending.

“Governments’ mounting debts have been a response to the economic downturn, not its cause. What ought to have been hard-wired into the EU’s institutional structure was not permanent fiscal austerity, but tough financial regulation. Of this there is little sign,” Robert Skidelsky, professor emeritus of political economy at Warwick University and a member of the British House of Lords, wrote in a recent column on Project Syndicate, an opinion website.

Some even question whether this new pact is necessary at all since most of what it requires is already part of EU law. “It is for political, symbolic reasons that they want to do this agreement,” Guy Verhofstadt, a Belgian liberal Member of the European Parliament, recently said.

Over the past year, the EU has adopted rules for greater economic convergence among its members, more surveillance of their budgets and stronger fiscal discipline.

“The governance system has been strengthened very much, so let’s do it,” Micossi said. Instead of working on a new treaty, the EU now needs to focus on growth, he explained.