Luxembourg, 18/10/2010 (Agence Europe) - The task force with the president of the European Council, Herman Van Rompuy, at the helm met on Monday 18 October with a view to finalising its report on strengthening economic governance, to be presented to European leaders next week. The meeting was not yet over at the time of going to press. The aim of the meeting was to finalise its recommendations on how, within the limit of the existing treaties, greater budgetary and economic supervision in the EU and especially within the eurozone might be achieved. According to a draft report, the broad lines of these recommendations are close to the position defended by the European Commission in its legislative package of September (see EUROPE 10225). The public debt criteria will be taken more into account. Sanctions against member states that breach the rules will be more automatic and applied as far upstream as possible. A new mechanism for overseeing macro-economic imbalance will be introduced (EUROPE 10225).
Penalties. Like the Commission, the “task force” takes the view that a broader range of sanctions of a financial and political nature should gradually apply with regard to the preventive and amending chapters of the Stability and Growth Pact (SGP). Targeting first and foremost the countries of the eurozone and then all member states, they will firstly concern the obligation to publish more information and the organisation of Commission missions. Any member state not complying with Council recommendations, in relation to the preventive and correcting chapters of the SGP, would have to supply a financial interest deposit.
On Monday, the kind of sanctions for SGP infringement no longer appeared to give rise to controversy. Member states remained on the contrary divided over how automatic Council decision-making should be. Supported by the Commission and the European Central Bank, countries like Germany and the Netherlands were adamant to use recourse to inverted majority whereby the decision would be said to be adopted unless a qualified majority of member states voices opposition before a certain deadline. “We support sanctions that are as automatic as possible”, the new Dutch finance minister, Jan Kees de Jager, said on arriving in Luxembourg. He deplored the over-cautiousness of some member states on this issue. The draft task force report underlines the importance of applying the inverted qualified majority rule. Other countries, including France, stuck to their position in favour of greater discretionary power being granted to ministers. The agency Reuters indicated that ministers were looking at a middle road to bring the German and French positions closer together on decision-making procedure. Prior to the almost automatic imposition of penalties by inverted qualified majority, there would be a political phase to leave room for peer pressure within Council.
Debt. The future rules of the Pact will grant more importance to the following-up of debt evolution. A high public debt minimises growth prospects, increases the risk of financial instability and reduces the ability to conduct budgetary policies against the current of the economic cycle, the task force states in its draft report, above all in a context of population ageing.
The Commission suggests that sanctions be imposed under certain conditions on a country whose excessive debt (above 60% of national GDP) does not decline sufficiently fast (5% annually). In their draft report, ministers do not put forward a target for assessing the trajectory of debt reduction. They consider that precise quantitative criteria, provisions relating to their phasing-in as well as a methodology should be included in European legislation. Italy, the most highly indebted country of the eurozone, takes the view that the level of private debt should be taken into account. For nine countries of Central Europe, attention should be paid to the weight of pension reform on budgets.
Macro-economic imbalance. The countries of the eurozone - whether they have lost a great deal in terms of competitiveness or they benefit from great surpluses in their current accounts - should act to tackle macro-economic imbalance, the draft report states. A new, specific oversight mechanism will be set in place to detect this kind of imbalance and oblige the member state(s) concerned to correct them. It will be based on a list of “practical, simple, measurable and available” indicators, which differ in relation to whether a country has adopted single currency or not. Aimed solely at the countries of the eurozone, sanctions - which could include a financial deposit or fines - would be decided only by Eurogroup countries, except that directly concerned.
The question of creating a permanent framework for combating any new public debt crisis of a eurozone country will not be settled, as changes to the European treaties would be needed. Other subjects remain pending such as suspension of voting rights in Council or the extension of the rule of inverted majority vote. (M.B./transl.jl)