Brussels, 23/11/2011 (Agence Europe) - On Wednesday 23 November 2011, the European Commission unveiled two draft regulations to give itself greater powers of scrutiny over the budgets of eurozone nations, particularly the weaker economies. This tightening of the belt is based on existing EU treaties and will introduce greater budget discipline in addition to the updated Stability and Growth Pact which will soon come into operation (in mid-December or early January). These new rules are music to Germany's ears as it has been arguing for a change to the EU treaties to introduce a culture of stability in the eurozone, but much more will be needed if eurobonds are to see the light of day (see separate article on the Commission's unveiling of eurobond options).
The President of the European Commission, José Manuel Durão Barroso, said: “Given the deeper interdependence of the euro area countries, so clearly demonstrated by the ongoing crisis, the Commission is proposing to enhance both the coordination and the surveillance of budgetary processes for all euro area member states and especially those with excessive deficits, experiencing or at serious risk of financial instability, or under a financial assistance programme”. This is the Commission's response to a request made by the European Council at the end of last month.
The EU commissioner with responsibility for the single currency, Olli Rehn, gave details of the two regulations to be adopted by the Council of Ministers and the European Parliament under the co-decision procedure. The first regulation asks eurozone nations to introduce into their legal systems, and preferably their constitutions, balanced budget rules to rein in debt, he said. The countries in question will be asked to draw up their planned budget on the basis of independent macroeconomic forecasts and set up national committees to monitor implementation of said budgets.
Most importantly, the Commission will have greater powers to intervene before a country decides on its budget and will also be able to intervene throughout the reform process of countries which might not abide by their public debt and deficit reduction trajectories. By 15 October each year, member states must submit their draft budget for the following year to the European Commission, which will assess the budget in the light of the Stability and Growth Pact and the country-specific recommendations of the European Council. If the draft budget breaches the Commission's guidelines, it may decide to issue an opinion and request changes be made within a fortnight. Rehn said that if requested by a country, the Commission would be able to explain matters to the national parliament.
Eurozone countries against which excessive deficit proceedings are running will be monitored more gradually depending on how far the disciplinary proceedings have progressed. The monitoring will keep the Commission constantly informed and it will assess countries' ability to meet their budget commitments rather than waiting until the deadline to see whether they will manage to bring their public deficit back below the 3% cut-off point. This is similar to Rehn's approach to Belgium, which he has asked to present tangible proposals over the next month to meet its pledge of cutting its public deficit to below 3% of GDP next year.
The second draft regulation will cover the weakest eurozone countries, allowing tighter surveillance of at-risk countries, even if they are not in receipt of international aid, added Rehn. He said experience had shown that member states were doing their utmost to put off having to ask for aid until the last minute, but this was counterproductive because it only weakened those countries' financial situation, meaning that it needed more aid. The Commission will be able to recommend to the Council of Ministers that an at-risk country (at risk to itself and also to the financial stability of the eurozone) should officially lodge a request for international aid. The budgets of countries already in receipt of aid will be closely monitored until 75% of the aid has been paid back.
Does the Commission have the democratic legitimacy and capacity to do this new work? Of course we have, says Barroso, explaining that if people want to keep the single currency, then countries will have to accept the existence of independent institutions which have delegated powers. After all, he said, the only other option would be to create more institutions to complicate the institutional labyrinth even more than at present or to leave member states free to decide on budget discipline for themselves. Barroso said the eurozone had to be managed at EU level and the Commission not only has this vocation, but is also technically prepared for the job, in cooperation with the Council of Ministers and other EU institutions, such as the ECB. (MB/transl.fl)