The European Parliament approved yesterday (13 June) an economic governance package that foresees setting up a redemption fund to help countries in financial trouble and gives more power to the EU to control national budgetary and economic policies. That gives a clear mandate to start negotiations with EU ministers that are expected to last for months.
“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).
"We have succeeded in formally putting on the negotiating table a systemic and structural answer to the crisis representing a real firewall to protect the eurozone.", said ALDE Group President Guy Verhofstadt (Belgium), welcoming the adoption of an amendment for the establishment of a European redemption fund.
“Today's vote sets out a clear and constructive alternative to the failed one-sided austerity, which has characterised the response to the economic crisis so far”, said Green economic affairs spokesperson Sven Giegold (Germany).
"Stronger European-level budgetary surveillance and coordination is an important step as we move towards true economic and fiscal union, but this must be accompanied by proper democratic oversight”, said Green economic affairs spokesperson Philippe Lamberts (Belgium).
The '2-pack' provides the EU with all the necessary tools to supervise the budgetary discipline of the Member States, ensuring a steady stream of information from the Member States to the Commission," said the Rapporteur of one of the proposals Jean-Paul Gauzès (France) and EPP spokesperson Marianne Thyssen (Belgium).
"We strongly support the compromise we have reached with the other political groups. ... Our Group has rightly been critical about the 'six pack'. Ever since it was adopted we have made our position very clear and worked on practical solutions to get us out of the crisis. The 'two pack' is a comprehensive package that will allow us to do so,” said S&D leader Hannes Swoboda (Austria) during a debate on Tuesday.
The European Commission presented the two new regulations (1 and 2) on 23 November 2011, hoping to draw a line under the leniency that allowed Greece and other eurozone countries to let their public debt and deficits explode.
The new regulations include:
- All eurozone countries would need to submit draft budgets each year to the Commission by 15 October for prior examination.
- The Commission would then have the power to request changes and ask for the budget to be redrafted if member states whose finance situation is deemed unsustainable.
- The Commission might be asked to defend its decision before national parliaments.
- National debt forecasts would have to be done by independent institutes.
The two regulations are being adopted under Article 136 of the EU treaty, which allows eurozone countries to adopt more stringent rules for themselves.
It excludes countries that do not use the single currency.
- European Parliament: Amended draft proposals of two-pack 1
- European Parliament: Amended draft proposals of two-pack 2
- European Parliament: Economic governance "two pack" - Q&A
- European Commission: Six-pack? Two-pack? Fiscal compact? A short guide to the new EU fiscal governance
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