Brussels, 07/01/2013 (Agence Europe) - At the end of December, Finland became the 12th eurozone country to ratify the Budget Pact (see EUROPE 10566), which therefore came into force on 1 January 2013. The pact was agreed upon in March 2013 to introduce tighter budget discipline in all European Union countries except the United Kingdom and the Czech Republic, which have opted out. Now that the pact has come into force, all the signatory nations will have to introduce a “budget golden rule” into their legislation (and preferably their constitution) by 1 January 2014.
The Budget Pact introduces a balanced budget rule whereby signatory countries must keep their budgets in balance or surplus, in other words, must keep their structural deficit below 0.5% of nominal GDP. Each year, countries' adjustment trajectories must allow them to achieve the medium-term deficit reduction target and this will be re-assessed as part of the budget procedure known as the “European Semester”. Member states breaking this budget rule will be required to introduce an automatic correction mechanism.
When a country's debt is well below 60% of GDP, it can be granted a cap of 1% of GDP. In exceptional circumstances, such as a major recession, the budget golden rule will not apply.
Cases may be taken to the European Court of Justice to check whether a country has properly transposed the golden rule into its legislation and any country found guilty of improper transposition can be fined up to 0.1% of GDP.
The Budget Pact requires countries with a debt of over 60% of GDP to reduce the amount above the 60% cap by one twentieth per year (calculated using the past three years). This rule will be eased for three years for countries subject to excessive deficit procedures.
The Budget Pact will become fully part of EU law after five years. It includes eurozone governance measures. Two eurozone summits must be held each year, at least one of which can be attended by non-euro countries. To boost cooperation, the European Parliament and national parliaments of Budget Pact countries will set up a body comprising members of their respective relevant committees.
The Budget Pact has so far been ratified by the following 12 eurozone countries: Austria, Cyprus, Germany, Estonia, Spain, France, Greece, Italy, Ireland, Finland, Portugal and Slovenia. Belgium, Luxembourg, Malta, the Netherlands and Slovakia have yet to ratify it. Four non-euro countries have already ratified the pact, namely Lithuania, Latvia, Romania and Denmark.
For further information, see http://european-council.europa.eu/media/639232/08_-_tscg.en.12.pdf (MB/transl.fl)