EU wins battle over national debt vetting

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Members of the European Parliament are rejoicing today (15 September) as they announce new rules which for the first time will grant more power to Brussels than to member states in policing the debt levels of troubled eurozone countries.

The agreement, announced on Thursday (15 September), draws a line under caustic rows over who should have the ultimate say on countries' national budgets, with the eurozone crisis underscoring the need for greater EU involvement in policing national debt levels.

"Yesterday the Presidency, the European Parliament and the European Commission had a fruitful discussion on the remaining issues concerning the six legislative acts on economic governance in the EU. As a result, the package of compromise proposals has been worked out," a spokesperson for the EU's rotating presidency, currently held by Poland, said in a statement.

By striking a deal on the so-called "six-pack" of legislation on economic governance, the EU hopes to undo the kind of political cronyism which damaged the credibility of the Stability and Growth Pact, which limits public debt and deficits.

In 2002, Germany and France collided with the European Commission when they decided to sideline the legislator's recommendations on bringing debts back down below a 3% of GDP ceiling.

Since the reform of the Stability and Growth pact in 2010, the European Parliament has taken the opportunity to prevent countries from ignoring the Commission's guidelines on lowering their debts, known as "excessive deficit procedures".

'Final warning' 

On Thursday, MEPs will announce a new measure dubbed a "final warning" whereby a country has already been given an opportunity to take measures to lower its debts and can only circumvent Brussels' advice by getting the support of other countries.

To give countries the chance to amend their budgets, the final warning will have a cooling-off period of one month before any more pressure is put on the country by Brussels.

And when the Commission issues such a warning, this can only be disregarded if a majority of eurozone countries rally behind that country – that means nine out of 17 countries will have to say they support the country's decision to disregard the EU executive's advice.

The entire package spans a preventative phase, which includes the "final warning," and a corrective phase, which includes fines on countries to be fed into an interest-bearing deposit.

MEPs also managed to get all parties to approve a fine on botched statistics after Greece was caught out last year for tampering with its figures to escape scrutiny.

Though the three sides came a long way towards putting an end to terse negotiations, the agreement reached last night is a provisional deal and MEPs are due to vote on the package at their plenary session in the final week of September.

Claire Davenport

The agreement was lambasted by the Greens/EFA group in the European Parliament, which has advocated for a more centralised approach to debt vetting.

"This deal is already being trumpeted as a breakthrough but it is nothing of the sort," regretted Green economic affairs spokesperson Philippe Lamberts. "Despite the lofty ambitions, this Six-Pack will fail to provide the basis for a robust and sustainable system of economic governance for Europe. The current situation shows that much bolder steps are required to address the challenges we face and this implies a much deeper fiscal, social and hence political union. This will require another political majority, both in the European Parliament and in the member state." 

Guy Verhofstadt, leader of the liberal ALDE group in the European Parliament, welcomed the completion of the negotiations: "We cannot go back in time and prevent the current crisis but we finally have armed ourselves with the right measures to avoid future ones."

"My group has always insisted that without more automaticity of sanctions in the preventive arm of the Stability and Growth Pact we would have not delivered a credible package to guarantee a sustainable economy in the long term."

Verhofstadt said improvements to the package included:

  • Improved budget discipline with a "reversed voting system" in the preventive arm of the Stability and Growth Pact that will make decisions on sanctions for rule-breakers more 'automatic'.
  • A broader surveillance of macroeconomic imbalances.
  • Peer pressure through open hearings in the European Parliament with national finance ministers and the EU Council of Ministers, including President Van Rompuy.
  • More coherence with otehr European economic policy instruments such as the European 'semester' of economic surveillance and the 'Europe 2020' growth and jobs strategy.

The 'six-pack' of economic reforms aims to strengthen the EU's Stability and Growth Pact in order to prevent the kind of budget gaps that are currently sinking the euro.

Four of the proposals aim to strengthen budgetary surveillance, while the remaining two focus on monitoring and controlling macro-economic imbalances within the EU.

But the package has come to a standstill as France refuses to cede more power to the European Commission. Meanwhile, the European Parliament wants to make it harder for indebted countries to sideline the Commission's advice.

The row revolves around Reverse Qualified Majority Voting (RQMV), which France refuses to accept for fear of losing control over its fiscal sovereignty. But the European Parliament insists that history – meaning the debt crisis – will repeat itself if countries are left to decide on their own.

  • 26 Sept.: MEPs to cast final vote on six-pack.

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