Brussels, 29/09/2010 (Agence Europe) - On Wednesday 29 September, the European Commission presented its legislative package - four directives and two regulations - which will aim to reinforce budgetary and macro-economic supervision in the European Union, particularly in the euro zone (EUROPE 10224). “The proposals we are making today represent the most important stage in economic governance since we adopted the Stability and Growth Pact. Once approved and implemented, they will mark a radical change in the way governance is dealt with in the EU and in the euro area in particular”, said the President of the European Commission, José Manuel Durão Barroso. The legislative package is based on the existing treaties. The new sanctions proposed initially concern the countries of the euro zone only. In a second phase, further proposals and sanctions targeting the whole of the EU will follow. The Commission hopes that the legislative package will be adopted next summer and implemented as of 2012.
The urgent nature of the reform appears to have been dictated by the financial crisis, which has worsened the deficits and public debts, and by the euro zone crisis, during which the markets have cast a great deal of doubt on the ability of several member states to refinance their public debt. “The pressure we have faced since the start of the crisis shows even more clearly that there is no such thing as a free lunch. Deficits with no compensation do not exist. The debts must be paid back and the money you use to pay back the debt is money you cannot spend on education, healthcare or pensions”, said Mr Barroso. Referring to the demonstrations against the austerity measures being held the same day, he argued that the proposed reforms were “the best from a social point of view”. Are the countries which took the most prudent measures in times of growth the ones with the fewest problems now? The Commissioner for Economic and Monetary Affairs, Olli Rehn, listed the “three principles” underlying the proposed reform: - preventative actions are always better than cure; - budgetary supervision is added to by broader macro-economic supervision and will fight macro-economic imbalances; - a “quasi-automatic” mechanism to ensure respect for the rules is set in place.
A reinforced SGP. The Commission proposes to bolster both the preventive and the corrective planks of the Stability and Growth Pact (SGP). For the preventive plank of the Pact, controls of public finances will be based on a new concept of “prudent” budgetary policy, whereby the growth of the annual expenditure of a member state will not exceed a reasonable rate of growth in the medium term, unless the medium-term objectives have been met or additional expenditure has been compensated for by equivalent revenue. The aim is to create incentives for the countries to use the budgetary surpluses to bring down their public debt. Failure to respect these rules would trigger warnings from the Commission, which could lead to a recommendation of the Council, calling for corrective action.
As regards the corrective plank, the Commission proposes that the criterion of debt, which should not exceed 60% of the national GDP, should be taken into account more. “What is more antisocial than a debt which pushes the threshold at the expense of social services and sustainable growth?”, Mr Rehn asked, putting forward the idea of “digital scaling of the reduction of the debt”. A reduction of the ratio of public debt to GDP in the order of 1/20th taken annually over the last three years would be considered “sufficient”. Failure to respect this criterion would not trigger the immediate launch of an excessive deficit procedure. Other factors would be taken into consideration, such as the structure of the debt, private indebtedness or budgetary commitments taken to pay for the ageing of society.
Sanctions. The Commission is proposing new sanctions, on top of those already in place under the current SGP, which would concern only the countries of the euro zone. A member state which receives a recommendation from the Council for failing to abide by the new rules on the preventative plank of the Pact would be obliged to pay a financial deposit equivalent to 0.2% of its GDP. It will get this deposit back with interest as soon as the Council notes that it is once again in compliance with the rules.
For the countries breaking the new rules of the corrective plank of the Pact, further financial sanctions will see the light of day and apply as soon as possible in the process. A deposit mechanism similar to the one under the corrective plank of the SGP, also equivalent to 0.2% of GDP, would apply, but bear no interest. It may be converted into fines in the event of failure to respect recommendations calling on a member state to correct its excessive deficit. The level of these fines will correspond to those already in place under the current SGP.
The Commission is of the view that decision-making on sanctions should be more automatic and less left to member states' discretion. It suggests that a Commission proposal imposing a sanction in both the preventive and corrective chapters of the SGP be deemed to have been adopted unless the member state concerned manages, within 10 days, to gather a qualified majority in Council opposing the Commission proposal. Germany and the ECB support this procedure, France is against it.
Macro-economic imbalances. Rehn said that difficulties such as those experienced by Ireland and Spain with “property bubbles”, despite “sound public finances”, had to be avoided. The Commission reform makes provision for the creation of a mechanism to monitor macro-economic imbalances. This mechanism is to be based on a scoreboard setting out economic and financial criteria and complemented by expert analysis. The Commission would regularly publish the results of the scoreboard. On the basis of all available information, the Commission would draw up a list of member states deemed at risk of macro-economic threats that endanger economic stability in Europe. It will provide country-specific in-depth reviews and, if necessary, will come forward with recommendations for the member state(s) concerned. The Council could declare the existence of an excessive imbalance in a member state and call on that member state to take corrective action within a specified deadline. If it repeatedly fails to respect the Council's recommendations, a euro area country on which a procedure for excessive macro-economic imbalance has been opened could be fined 0.1% of national GDP. Such a decision would be for the Council to make according to a reverse voting mechanism, as previously mentioned and involving only the countries of the euro area, with the exception of the country concerned. (M.B./transl.fl/rt)