As a third step towards reinforcing EU economic governance, the Commission has put forward a package of six regulatory legislative proposals for concrete legal instruments.
The financial and economic crisis, along with the recent euro-area debt crisis has exposed gaps in the current EU economic governance system and showed that its existing instruments need to be used more fully. With this third step as follow-up to the its Communications on economic governance of 12 May and 30 June, the Commission puts forward a comprehensive and coherent package of reforms to strengthen existing tools and extend them for coordinating economic and fiscal policy in the EU.
In addition, further provisions are made for the "European Semester" which has already been approved to start in January 2011.
Documents
Strengthening the Stability and Growth Pact with prudent fiscal policy-making
The monitoring of public finances will be based on the new concept of prudent fiscal policy-making (PFPM) and should ensure actual convergence towards the medium-term objective (MTO). For Member States not at the MTO, annual expenditure growth should be set below trend growth (unless extra revenues are collected) to ensure effective convergence towards the medium-term objective. The Council will verify if Member States comply with PFPM principles. The Commission may issue a warning in case of significant deviation from the PFPM.
Debt developments will also be followed more closely and brought into the picture. Namely, Member States whose debt lays in excess of 60 per cent of GDP should take steps to reduce it at a satisfactory pace. Member States will be benchmarked as to whether they remain sufficiently on track to reduce their debt accordingly. Therefore the decision of opening an excessive deficit procedure will be based on a wider range of criteria including debt developments.
Preventing and correcting macro-economic imbalances
One lesson learned from the crisis is that fiscal policy should not be looked at in isolation. The proposed improvements for broader macroeconomic surveillance to avoid large macro-economic imbalances and large and persistent divergences in competitiveness would therefore include regular assessments and an alert mechanism. Once an alert was triggered, the Commission would make a country-specific analysis and recommendations to the Council on how to tackle the imbalances. It could also issue an early warning directly to the Member State. In particularly serious cases, the Commission would recommend placing the Member State in an “excessive imbalances position”, triggering stricter surveillance of corrective action.
Establishing national fiscal frameworks of quality
National fiscal frameworks should also be strengthened and better aligned with the new economic governance rules. Proposals include ensuring consistent accounting, aligning national fiscal rules with Treaty obligations, switching to multi-annual budgetary planning and ensuring that the whole system of government finances is covered by the fiscal framework.
Stronger enforcement
Two regulations detail a set of gradual sanctions for non-compliant euro-area Member States, including non-interest bearing deposits which would be converted to fines in the event of repeated non-compliance. To reduce discretion in enforcement, a new “reverse voting mechanism” is also envisaged. Under the new voting rules, which would apply when imposing sanctions, a Commission proposal will be considered adopted unless the Council overturns it by a qualified majority.
This package of proposals will now be now examined by the Council, the European Parliament and the European Economic and Social Committee.
Press release
© European Commission
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