Brussels, 21/10/2010 (Agence Europe) - The publication on Thursday 21 October of the final report of the task force led by European Council President Herman Van Rompuy has brought light to what member states really decided in terms of reform of economic governance, in Luxembourg on Monday of this week (see EUROPE 10239 and 10238). This report, published by EUROPE in its Documents section, sets out the procedure which leads ultimately to sanctions being imposed on euro area countries which do not comply with the revised Stability and Growth Pact (SGP). Taking its inspiration from the Franco-German agreement, this procedure has been severely criticised, particularly by the European Parliament (see EUROPE 10240) and the European Central Bank (ECB). The report by the task force on economic governance will be submitted to the European Council of Thursday 28 and Friday 29 October.
The task force says that “a wider range of sanctions and measures, of both financial and reputational/political nature, should be applied progressively in both the preventive and the corrective arms of the SGP, starting at an earlier stage in the budgetary surveillance process”. Political sanctions will take the form of new reporting requirements, specific reports to the European Council and on-site monitoring by the European Commission working in liaison with the ECB. Financial sanctions will consist of additional enforcement measures for euro area countries, such as interest-bearing and non-interest-bearing deposits and fines. At a later, second stage, other financial sanctions will be introduced for all EU member states, except the UK, in the form of removal of certain European funding (for example, structural funding or rural development funding) the cost of which would have to be borne by the state at fault.
The nature of these sanctions does not appear to pose any difficulties. No euro area country has openly challenged the figures put forward by the Commission in its legislative package at the end of September (see EUROPE 10225). This is the case, for example, where, in the event of excessive public deficit, states will be required to make a financial deposit equivalent to 0.2% of national BDP.
Decision-making procedure. Much more controversial, however, is the decision-making procedure decided by the ministerial working group which could ultimately lead to sanctions on euro area countries. Member states appear reticent about introducing an over-automatic procedure which would largely limit their discretionary power to the Commission's advantage. They do not categorically reject the “reversed majority rule” for deciding whether or not to impose a sanction. They do, however, limit the scope by introducing a prior six-month period during which a country in difficulty would be called upon to take energetic measures after which the Council would, by qualified majority, issue an opinion on measures taken. According to the reversed majority rule, the Commission suggests sanctions that the Council can only reject by qualified majority against the legislative proposal.
On the subject of sanctions, the task force differentiates between the preventive and corrective arms of the Stability and Growth Pact. In the preventive part, sanctions may be imposed if a eurozone country deviates significantly from the adjustment path foreseen in the SGP for mastering its deficit, even if this is below 3% of national GDP. The procedure to implement this measure is as follows: - the Commission issues an early warning when a member state deviates too significantly from its trajectory; - the Council has one month in which to adopt a recommendation by qualified majority calling on the country concerned to take the necessary measures; - if this member state does not take satisfactory action within five months (three months for the most severe cases), the Council will adopt a recommendation by qualified majority, enacting on such a situation; - at the same time the state in question will be under an obligation to make an interest-bearing deposit except if the Council rejects the sanction proposal according to the reversed majority rule.
The task force recommends introducing the following measures in the corrective part of the SGP: - when a member state which has already been subject to interest-bearing deposit under the preventive arm of the SGP is placed in excessive deficit procedure (EDP), the interest-bearing deposit is transformed into a non-interest-bearing deposit; - when a member state placed in EDP has not been subject to an interest-bearing deposit under the preventive arm, the Council will adopt a recommendation setting a deadline for effective action on the basis of a Commission recommendation fixing a date limit (maximum six months, three months for less serious cases) for taking corrective measures, with sanctions being imposed “immediately” if there are “serious policy slippages”; - if, once the time limit is past, the Council decrees publicly by qualified majority that the country concerned has not taken the necessary measures, then a fine will be decided by reverse majority rule; - and if the member state persists in failing to put into practice the Council recommendations, then the fine imposed upon it will include a variable component related to the level of the deficit.
ECB: The European Central Bank does not support all the elements of the report by the ministerial taskforce. It would like this position to appear in the report, according to a note from the European institution unveiled by The Financial Times. Its president, Jean-Claude Trichet, has spoken on several occasions in favour of “almost automatic” sanctions (see EUROPE 10223).
Crisis management. Finally, the taskforce considers that, in the medium term, a permanent crisis management mechanism should see light of day in order to help the eurozone countries unable to refinance their sovereign debt on the markets and avoid all contagion. Questions to be dealt with later include the participation of the private sector, the role of the IMF and the conditions for triggering such a mechanism. The creation of such a mechanism may make it necessary to amend the treaties, and the taskforce therefore looks to European leaders to decide what follow-up should be given to this idea. Germany and France call on the president of the European Council to make proposals by March 2011. (M.B./transl.rt/jl)