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08 June 2010

Van Rompuy’s Economic Governance Task Force: More budget and macro-economic surveillance and sanctions are needed


Herman Van Rompuy said policymakers will also improve the Stability and Growth Pact by creating more sanctions. Sanctions could already kick-in before the 3% threshold for the annual deficit is breached, for instance if warnings have been neglected, or if the level of debt is rising too quickly.

President of the European Council, Herman Van Rompuy said that strengthening the Stability Pact and reducing competitiveness divergences were the main subjects discussed in the task force meeting. Next meeting on 12 July will be focused on financial crisis mechanism and  improving economic governance and coordination
 
He mentioned the following four improvements.
1. The first is the so-called "European semester". In the spring, national budgetary plans would be presented to the Commission and EU Member States. Of course, not to be checked in detail or to be decided upon by the European institutions! That is the prerogative of the national parliaments. However, the main assumptions underlying the budgetary plans, like the levels of growth or inflation, would be examined. So would the main aggregates, like total revenues, total spending and deficit targets. Timing is key here. A government presenting a budgetary plan with a high deficit will have to justify itself in front of its peers, amongst Finance Ministers. Since this would take place as early as the spring, there would still be time to adjust the plans before the final budget is presented.
Moreover, a national parliament would be able to judge its governments' budget plans knowing fully their credibility. Of course, we need to take into account the specificity of some countries.
2. We will also improve the Pact by creating more sanctions earlier on. Sanctions could already kick in before the 3 percent threshold for the annual deficit is trespassed, for instance if warnings have been neglected, or if the level of debt rises too quickly. To use the traffic light image: until now, you only got fined when driving through the red light of the 3 percent; from now on, you could also be in trouble when crossing the orange light. Obviously, the conditions -- under which circumstances orange is an infringement of the rules -- will have to be defined precisely. We have to define a new set of sanctions -- more progressive and consistent. We have asked the Commission to come forward with proposals on this.
3. A third element in the budget surveillance is taking the public debt level better into account. So far, the focus has been almost exclusively on the maximum annual deficit, the 3 percent of GDP. Much less attention has been paid to the level of public debt, the 60 percent. This needs to be corrected. We do not propose a special procedure for "excessive debt", but one idea could be to launch the excessive deficit procedure earlier for countries where debt is not reduced quickly enough. This could be one of the triggers for an orange light I just referred to.
4. Member States also supported ensuring the independence of national statistical offices for data provision, free from political influence.
 




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