Brussels, 11/01/2012 (Agence Europe) - All EU member states bar the United Kingdom are moving closer to a compromise on a new budget pact. The latest version was sent to the 26 countries on Tuesday 10 January (see our Document series), giving limited powers to the European Court of Justice and the European Commission and taking account of the talks and broad agreement at the working group meeting on Friday. A diplomat said that equilibrium had been reached for virtually all the deal, but the European Parliament delegation is not happy with it.
European Court of Justice. The initial document said that the European Court of Justice would only have power to check that member states had properly transposed the golden rule into their constitution or equivalent to restrict public borrowing, as agreed at the 9 December 2011 European Council. The second version gave the Court of Justice a role in the application of excess deficit rules, but every country apart from the Netherlands protested against the measure. The current version returns to what was agreed on 9 December, namely that the Court of Justice would only have the job of checking that countries have properly introduced the golden rule into their own legal system.
Role of the European Commission. According to the Council of Minister's legal department, the part of the EU treaty that lays the foundations for the European Court of Justice is very clear - the draft treaty is not a full EU treaty and therefore the European Commission cannot send cases to the European Court of Justice (only member states can do this under the budget treaty). The only way round this is to change the EU treaty to give the Commission power to take countries to court under the new deal. Member states seems to be happy that the Commission will not be able to take them to court, with the former head of the EIB, Philippe Maystadt of Belgium, saying on Wednesday 11 January that the Commission does not have the legitimacy to directly penalise a member state's budget. He said that at the moment, the final decision to penalise a member state for its budget would be better accepted if it were taken by heads of state. According to the updated 10 January version, member states can ask the Commission to draw up a report into whether and how another member state is meeting its commitments, but at the end of the day, the final decision about whether to take a country to court would be taken by member states.
Golden rule. A diplomat says that the vast majority of countries want a relaxing of the golden rule measures and a strong commitment by each member state to reducing its debt over the long-term might suffice. The budget rules will have to be added to countries' constitutions or similar legislation. The relaxing of the golden rule is due to pressure from Denmark and Ireland which, unlike France, do not have legislation that is of the equivalent of a constitution. Germany, however, is sticking doggedly to its golden rule and getting it added to the highest legislation that exists in each member state.
Excessive deficits. Under the agreement reached at the European Council of 9 December, special measures cover the public deficit (decisions to be taken by the Council of Ministers using the reverse qualified majority rule, for example), but nothing was said about public debt. The first version of the draft deal matches the agreement, but in the second draft, the new financial penalties will not apply when the public deficit exceeds 60% of GDP, but only if the upper limit set on annual public deficits is breached. The initial draft ruled that the penalties also applied to debt.
Italy seems to have won its way over the time allocated for reducing debt. Italy's public debt as a share of wealth is the second highest in the EU (Greece has the highest), and it wants to ensure that the debt reduction rules (cutting debt by a twentieth of GDP each year) is adjusted to take private debt levels into account, along with other relevant factors. This is exactly what is stipulated by the SGP, in fact. The draft treaty has been watered down to give highly indebted countries the guarantees of flexibility granted in the SGP. This is one of the most controversial aspects of the pact.
Ratification. Discussion is ongoing about the exact number of countries that have to ratify the deal in order for it to come into force. The first version said nine, but this was seen by Germany as too low. Earlier this month, the number was increased to 15 of the 17 eurozone nations, but other countries see this as too high. The latest version says 12 but this is not yet fixed. A close source explained that the important thing was the idea of not having to wait until all 17 have ratified, rather than the actual number as such. The treaty would come into force on 1 January 2013 or on the day after ratification of the twelfth eurozone nation.
The president of the European Council, Herman Van Rompuy, is reported to have said that the latest version is virtually complete, although further talks are planned on Wednesday 18 January to tie up loose ends. The deal will be discussed at the Eurogroup meeting of 23 January and the ECOFIN Council on 24 January. The budget pact is due to be formally endorsed at the European Council on 30 January and signed in March 2012.
Rejection by EP. MEPs Elmar Brok (EPP, Germany), Roberto Gualtieri (S&D, Italy), Guy Verhofstadt (ALDE, Belgium,) and Daniel Cohn-Bendit (Greens/EFA, Germany). who represent the European Parliament in the budget treaty negotiations, have all rejected the latest version of the new pact, saying in a joint press release that it is not compatible with existing treaties and does not respect the Community method, and they are concerned that the draft treaty clashes with the updated Stability and Growth Pact. The MEPs call for stronger measures for economic growth.
Twenty-six of the 27 EU member states (all bar the UK) decided on 9 December to bring in a new budget treaty for eurozone nations and any others wishing to join them. The treaty introduces a golden rule to be set in stone that would outlaw any excessive borrowing. The pact would introduce virtually automatic penalties for countries breaking the 3% of GDP upper limit for public deficits. (LC/MB/transl.fl)