Brussels, 15/03/2011 (Agence Europe) - On Hungary's national day, Tuesday 15 March, EU27 finance ministers reached agreement on the six items of draft legislation to boost economic governance in Europe, particularly in the eurozone (see EUROPE 10334). This agreement by the Council of Ministers was at the very heart of the Hungarian Presidency's priorities and is part of the broader response to the eurozone debt crisis, explained the chair of the ECOFIN Council, Hungarian Finance Minister György Matolcsy. He said it gave Hungary a clear mandate for negotiating with the European Parliament to get the draft legislation formally passed before the end of June 2011. The European Central Bank said that the new budget discipline rules did not go far enough.
Some of the ministers speaking in the public debate welcomed the agreement as “historic” but others were more circumspect. They described it as a move in the direction of strengthening the Stability and Growth Pact (SGP). Swedish Finance Minister Andres Borg said it was slightly historic but had to be implemented in practice. The Polish representative said that not many ministers had thought it would be possible to go so far so fast. Two areas were left to one side to be examined in three to five years time, namely deciding on how to cut risks in banking and making rules more flexible when the public purse is fuller. French Finance Minister Christine Lagarde said the deal would move closer to European economic government. Spanish Finance Minister Elena Salgado hailed the flexibility of her colleagues towards the most decentralised countries. The British finance minister welcomed the UK's opt out from various measures in the national budget directive, which were a sign of its “budget sovereignty”. Dutch Finance Minister Jan Kees de Jager, said it was time to act. He is delighted with the introduction of the requirement to cut excess public debt by at least a twentieth every year. At the eurozone summit Italy agreed to this one-twentieth reduction requirement from 2015 onwards as long as public debt calculations include household debt, and this move by Italy has paved the way for Tuesday's agreement.
Must pull socks up. The deal is not to the ECB's taste and its president, Jean-Claude Trichet, explained that the bank says the Council of Ministers' agreement does not go far enough and learn the lessons of the debt crisis.
EU Economic and Monetary Affairs Commissioner Olli Rehn said he was reasonably satisfied with the decision-making process for penalties recommended by the Council of Ministers. Behind the scenes, however, the European Commission is still calling for automatic penalties by means of reverse qualified majority (a decision being passed unless opposed by the majority of member states). As suggested in October 2010 by the taskforce chaired by the president of the European Council, Herman Van Rompuy, the Council of Ministers ring fenced the penalties decision to give itself room for manoeuvre in the assessment of policies introduced by countries to correct excess debt and/or macroeconomic imbalance. As suggested by the Benelux countries, the EU leaders introduced some control over this ring fencing by asking the Council of Ministers to either follow the Commission's recommendations or explain why not in writing.
The legislative package recommended by the Council of Ministers tightens up budget discipline. For the preventative arm of the SGP, it introduces a spending requirement banning any increase in public spending in excess of an amount set in relation to growth in national GDP. Windfalls will be used to reduce public debt. On the corrective arm of the SGP, the focus is on debt and member states will have to cut debt even if their public deficit is less than 3% of GDP. Excess public debt (defined as debt over 60% of GDP) will have to be reduced by a twentieth each year.
A new set of financial penalties will apply sooner than planned on a gradual basis. For example, member states may be required to pay a non-interest-bearing fine of 0.2% of GDP as soon as excess deficit proceedings are launched. The member states suggest using the cash from the fines to fund the eurozone bailout funds (the EFSF, later to become the ESM).
When it comes to macroeconomic imbalances, the new rules will introduce a system for early detection of financial bubbles and the like. A league table of economic indicators will be drawn up along with a qualititative analysis for each country. In the event of serious imbalances, a country might be required to correct the situation within a certain deadline. (M.B./trans.fl)