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07/12/2016

Commission defends role as sole guardian of fiscal discipline

Euro & Finance

Commission defends role as sole guardian of fiscal discipline

Moscovici stressed that “this is a Commission that applies the rules, no more no less, and it takes its decisions collectively”.

[European Parliament]

Amid growing concerns in Berlin, Frankfurt and The Hague about flexible interpretations of the Stability and Growth Pact, the European Commission ruled out the possibility of transfering the assessment of national budgets to an independent external body.

“This is a political commission that implements ambitious public policy initiatives,” said Pierre Moscovici, the EU commissioner for Economic Affairs, during the presentation of the Commission’s Autumn economic forecasts on Thursday (5 November).

But “a political commission is not a politicised Commission”, he added in a nod to fiscal hawks who warned about bending the EU’s budget deficit rules.

The French Commissioner stressed that the executive’s decisions are based on facts, and defended the work of his services as “fully independent, sound and technical”.

“This is a Commission that applies the rules, no more no less, and it takes its decisions collectively,” he told reporters.

The European Commmission has come under fire recently, as the champions of strict compliance with the SGP believe that Jean-Claude Juncker’s Commission is giving too much leeway to member states to meet their deficit and debt targets.

“There is a big difference between a political Commission and a politicised Commission,” Eurogroup President Jeroen Dijsselbloem said the day before. In his view, the assessment of the national budgets “should be done in a technical way and not in a politicised way”, he said in a veiled criticism.

The decision to grant additional time to France to cut its deficit below the mandatory 3% of GDP, and the ‘pardon’ extended to Italy and Belgium due to its high level of public debt, provoked controversy this year.

>>Read: Pierre Moscovici rejects economic sanctions for member states

Sources close to Dijsselbloem explained that the Dutch finance minister did not have any specific country in mind, and that his comments were a general “warning”. The Commission is expected to publish its assessments on the national draft budgets by the end of November.

Dijsselboem’s warning followed the steps of the European Central Bank (ECB). In a recent paper, the Frankfurt-based institution noted that the use of too much flexibility in the application of the SGP could be “counterproductive”. The ECB was particularly concerned about giving additional time to member states under an excessive deficit procedure to balance their public accounts.

>> Read: ECB attacks Commission’s easing of fiscal rules

ECB President Mario Draghi, said early this year that budget rules “can only really be credible if they are applied with very little discretion”. But in the EU, “the fiscal rules have repeatedly been broken and trust between countries has been strained”.

Dijsselbloem quoted Draghi to underline that “the SGP is our anchor of confidence” and “we need to adhere to the rules”.

“The Commission’s role is crucial here,” the Dijsselbloem stressed.

In order to guarantee an independent assessment of the national budgets, Dijsselbloem recommended putting in place a European fiscal council “placed outside the Commission”. The executive would give its political opinion based on the independent technical conclusions of this body.

Fiscal board draws criticism

The Commission recently proposed setting up a European fiscal board. But in contrast with Dijsselbloem’s idea, this new body will be hosted by the EU executive, and its functions will focus rather on providing ad-hoc advice, instead of assessing the national budgets.

Asked if the Commission was willing to hand in these powers to the new European fiscal board, Moscovici insisted on maintaining the original plan. This new authority “will be independent but linked to the Commission,” he told reporters.

An EU official told EurActiv that Dijsselbloem’s comment came from a “misconception” ? a perception that the Commission’s directorate-general for Economic and Financial Affairs was not independent from Moscovici’s cabinet.

“This is not the case,” the official stressed, speaking on condition of anonymity.

The official admitted however that the “political leadership” shown by the Commission in dealing with countries like France or Italy in the budgetary procedure could explain this perception.

Meanwhile, the proposal for an independent European fiscal board has elicited criticism in the European Parliament. In a letter sent to Commission President Jean-Claude Juncker, Parliament President Martin Schulz expressed concerns that legislators will not be consulted in nominating the five experts on the new board.

“The democratic accountability of this body, whose assessments will bear political implications, is not ensured,” Schulz said in the letter, seen by EurActiv.

Positions

Eurogroup President Jeroen Dijsselbloem said on 4 November in a speech in Bratislava (Slovakia): "Keeping our public finances on a sustainable footing calls for transparent compliance with and enforcement of the budgetary rules: the Stability and Growth Pact is our anchor of confidence as Mario Draghi always says and we need to adhere to the rules. The Commission's role is crucial here. The Commission has the instrument to make sure the fiscal rules are applied and if necessary it must use it. There is a big difference between a political Commission and a politicised Commission. Let me explain. The Commission as in the college of commissioners, is a political body. But I feel the assessment of the national draft budgetary plans should be done in a technical way and not in a politicised way. For that reason there could be merits in having a big European sister of the national fiscal councils, placed outside the Commission to provide independent assessments of the national draft budgets, on the basis of which the Commission gives its (political) opinion. I think this is the right approach." 

Background

The interpretative communication on the Stability and Growth Pact, adopted by the College of Commissioners on 13 January, eased the fiscal discipline required of the member states in both the preventive and the corrective arms of the SGP, on condition that they implement structural reforms and boost investment or if their economic environment deteriorates significantly.

The review of the fiscal rules was a promise made to the Socialist group by European Commission President Jean-Claude Juncker in exchange for their support during his nomination.

Officials consider that the new interpretation brought “real progress” in reviewing the EU’s existing fiscal rules, in particular in the case of allowing a temporary deviation for member states under the excessive deficit procedure (EDP), when reforms are planned but are yet to be legally endorsed.

The European Commission’s communication confirmed that the implementation of structural reforms will be considered a relevant factor under the EDP to ease the adjustment path. In the absence of a sound methodological framework to estimate the budgetary effects of structural reforms, the executive assesses eligibility for the structural reform clause on the basis of a dedicated reform plan – submitted by the member state in spring - in the context of the annual update of the Stability and Convergence Programmes. The programme needs to include detailed and verifiable information, as well as a credible timeline for adoption and delivery of the envisaged reforms.

The European Council's legal service issued an opinion in early April in which it questioned this point of the Commission's communication. The legal opinion pointed out that, in order to consider structural reforms as a “relevant factor” in easing the fiscal targets, they must be adopted by the national authorities “through provisions of binding force, whether legislative or not”. Therefore, a simple announcement of upcoming reforms, no matter how credible and detailed they are, is not enough. 

The executive has insisted since then that its communication is legally sound and that it acts within its scope of interpretation.

The Economic and Financial Committee of the Council is expected to issue a new code of conduct by December to narrow the differences of view between the Commission and the Council. But regardless of the outcome of the Council's work, the Commission has said that it will continue applying its own communication.