“The parliament for the first time put a regulation that is a beginning of a structural resolution to the crisis”, ALDE Group President Guy Verhofstadt told a press conference after the vote, which is a clear mandate to start negotiations with EU ministers on the matter.
The first part of the so called ‘two- pack’ proposed by French centre-right MEP Jean-Paul Gauzès aims to create a system to deal with countries in significant financial trouble. It was adopted overwhelming - 471 to 97, with 78 abstentions.
The second resolution, drafted by Portuguese MEP Elisa Ferrera (Socialists and Democrats), steps up budgetary reporting requirements for eurozone countries. The report was approved 501 to 138, with 36 abstentions.
The new fiscal and budgetary rules were adopted by Economic and Monetary Affairs Committee in mid-May. But because of a split result, MEPs decided to postpone opening trialogue negotiations with EU ministers and referred both proposals to the plenary in order to gauge the level of support of the house for the texts and avoid EU ministers taking advantage of the Parliament’s weakness as revealed by the committee vote.
Now, with a clear mandate, Parliament's negotiators will enter into talks with eurozone member states in order to reach a compromise on the new piece of legislation.
Asked about whether the resolutions will gain support in the Council, Hannes Swoboda, leaded of the Socialists and Democrats, said that some countries with top credit ratings were switching their positions. He gave as an example his own country Austria, which after being against, is now backing the resolutions.
The two-pack builds on the ‘six-pack’, a group of economic governance regulations that entered into force on 13 December 2011.
Under proposal tabled in November, the European Commission would be able to administer countries that have sought international financial assistance to keep them from bankruptcy (see background).
Monitoring of budget proposals
The first leg of the two-pack concerns the monitoring of draft budgetary plans of eurozone nations. It also requires that the countries consult the Commission and other eurozone members before adopting any major economic and fiscal policy reforms.
The second regulation aims to strengthen economic and budgetary surveillance of euro member countries experiencing serious financial problems.
According to the new rules, the Commission could place a country on the verge of default under legal protection and demand a debt settlement plan and implementation of other measures, like it happens for companies, Gauzes said.
Once under such protection, a country could not be declared to have defaulted, its creditors would need to make themselves known to the Commission within two months, and loan interest rates would be frozen.
The European Parliament’s committee added some significant amendments to both resolutions.
The amended proposals give the Commission more control over eurozone countries’ fiscal policy, but those increased powers would be subject to more democratic control and the budget cuts couldn’t be made at the expense of killing growth.
The committee reports also propose setting up a European Redemption Fund (ERF) to mutualise all the eurozone countries' debts in excess of 60% (around €2.3 trillion).
The repayment of this debt would then be carried out over 25 years, thereby buying time for structural reforms to be carried out. It would also require the Commission to present a roadmap for introducing eurobonds as well as to present a mechanism for funding infrastructure investment equal to 1% of GDP (around €100 billion).