The sovereign debt crisis has opened the door for further economic and fiscal policy integration. Several new rules, intended to strengthen economic governance in the EU, have been introduced mainly through the so-called Six Pack, the Two Pack as well as the Treaty on Stability, Coordination and Governance. It is important to note that whereas the Treaty on Stability, Coordination and Governance applies to the signatories’ states, all EU’s member states but the UK and Czech Republic, and the Two Pack will be directly applicable under the national law of eurozone member states, the Six Pack applies to all Member States, including the UK. It is now clear that member states economic and fiscal policies are co-ordinated at EU level. The Commission is allowed, despite the lack of legitimacy, to interfere with member states’ budget decision making and to control national economic policies. In fact, national governments, particularly in the eurozone, are no longer responsible for a great range of domestic economic policies.
The EU Economic governance "Six-Pack" has given Brussels unprecedented power to intervene in domestic economic policies. It entered into force in December 2011, and since then there has been broader and enhanced surveillance of fiscal policies as well as macroeconomic policies. It has introduced for the first time binding instruments for economic coordination. There is now a binding process to monitor and correct the emergence of imbalances in national economies.
The EU Member States are not only monitored for excessive deficits and debts, but also for imbalances and falling competitiveness. It is important to mention that there are provisions on economic coordination and surveillance that also apply to the UK. The UK is subject to the macroeconomic surveillance framework. This is unacceptable.
The regulation on the prevention and correction of macroeconomic imbalances provides for a “new element of the economic surveillance process” the so-called Macroeconomic Imbalances Procedure, which comprises a regular assessment of risks of imbalances, including an alert mechanism. Every year, in April, all Member States are required to submit their Stability/Convergence Programmes and their National Reform Programmes, which are then examined by the Commission in order to ensure that any reform planned is in line with the economic priorities for the EU, adopted by the European Council, the EU's growth and jobs priorities, particularly the Europe 2020 strategy.
The UK is enmeshed within the EU economic and employment policies under the 2020 strategy. Those policies plainly do not work. The UK is required to observe EU targets on employment, research spending, green technology, education and poverty reduction. It is required to inform the Commission about economic policies measures and is subject to the Commission’s warnings and Council recommendations if its economic policy is not consistent with the broad economic guidelines.
The Macroeconomic Imbalances Procedure mechanism is aiming at early detecting Member States with potentially problematic levels of macroeconomic imbalances. It is based on a scoreboard, which consists of a set of economic and financial indicators, with corresponding indicative thresholds, in order to identify imbalances emerging in different parts of the economy. A scoreboard rates therefore member states' performances as regards economic stability and competitiveness. It is composed of macroeconomic and macro financial indicators for Member States, and reviews macro-economic indicators including current accounts and external debt, price or cost competitiveness as well as productivity, unit labour costs, public debt and private sector credit. Moreover, the Commission takes into account economic growth, employment and unemployment performance, productivity and sectoral developments.
Then, each November, the Commission presents a Alert Mechanism Report, which identifies Member States that the Commission deems to be affected by, or at risk of, imbalances. The Commission compiles, therefore, a list of Member States deemed at risk of imbalances (black list).
Last November, the European Commission published the second Alert Mechanism Report, which has identified 13 member states, Belgium, Bulgaria, Denmark, Spain, France, Italy, Cyprus, Hungary, Malta, the Netherlands, Slovenia, Finland, Sweden and the United Kingdom that show signs of potential macroeconomic imbalances and require an In-Depth Review of their economies.
Based on the multilateral surveillance procedure and the alert mechanism, and taking account of the discussions in the Council and the Euro Group, the Commission undertakes in-depth reviews for Member States where the alert mechanism indicates possible imbalances or a risk. The in-depth review covers an analysis of sources of imbalances in the Member State under review and whether these imbalances constitute excessive imbalances. It takes into account the severity of imbalances and
possible spillovers to other Member States, whether the Member State in
question has taken appropriate action in response to Council
recommendations as well as the Member State policy intentions, as
reflected in its Stability and Convergence Programme and National Reform
Programme, and any early warnings or recommendations from the European
Systemic Risk Board to the Member State under review.
The in-depth reviews are published in April and confirm or deny the existence of imbalances, as well as they seriousness. The Commission has recently published the findings of the in-depth
reviews carried out into 13 Member States identified in last November’s
Alert Mechanism Report as showing signs of macroeconomic imbalances.
It is important to mention that the Commission has carried out enhanced surveillance missions to the Member States concerned in preparation of these in-depth reviews.
The in-depth reviews confirmed that the Member States concerned face macroeconomic imbalances. Whereas the European Commission concluded that “Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland, Sweden and the United Kingdom experience imbalances”, it considered “the imbalances to be excessive according to the Macroeconomic Imbalances Procedure” in Spain and Slovenia.
All Member States experiencing imbalances are required to take into account the findings of the in-depth reviews in their National Reform Programmes, and Stability or Convergence Programmes, which must be presented by the end of April. Hence, the Member States experiencing imbalances that were not found to be excessive, including Belgium, Bulgaria, Denmark, France, Italy, Hungary, Malta, the Netherlands, Finland, Sweden and the United Kingdom, have been requested to take the findings of the in depth reviews into account in their programmes.
The Commission will put forward policy recommendations for these countries to correct imbalances after assessing the above-mentioned programmes. In the other hand, the member states with excessive imbalances, Spain and Slovenia, are required to set out a comprehensive and detailed policy response to deal with the imbalances in their National Reform Programmes and Stability Programmes.
Hence, in May the Commission will give policy advice to each Member State in its Country-Specific Recommendations, which are based on the in-depth reviews, and on its assessment of the National Reform Programmes and Stability or Convergence Programmes. Then, the Council on a recommendation from the Commission may adopt the necessary preventive recommendations to the Member States concerned.
An excessive imbalance procedure would be initiated if the in-depth review identified severe macroeconomic imbalances in Member State, including imbalances that jeopardise the proper functioning of the economic and monetary union. On a recommendation from the Commission, the Council may declare the existence of an excessive imbalance and recommend the Member State concerned to take corrective action within a specified deadline to remedy the situation. Such recommendations may address policy challenges across several policy areas such as fiscal and wage policies, product and services markets. Any Member State for which an excessive imbalance procedure is opened would be required to present its policy intentions designed to implement the Council recommendations in a corrective action plan. The Member State concerned would be under the obligation to report regularly on the progress of implementation. The Commission is allowed to carry out enhanced surveillance missions to the Member State in question in order to monitor implementation of the corrective action plan.
The Council will assess the corrective action plan and, on the basis of a Commission report, it will decide whether or not the Member State concerned has taken the recommended corrective action. If the Member State has not taken the recommended corrective action, the Council, on a recommendation from the Commission, will adopt a decision declaring non-compliance and a recommendation setting new deadlines for taking corrective action.
The regulation on enforcement measures to correct excessive macroeconomic imbalances, lays down a system of fines for correction of macroeconomic imbalances in the euro area. Hence, if a member state repeatedly fails to comply with Council recommendations to address excessive macroeconomic imbalances would be subject, as a rule, to a yearly fine, until the Council concludes that it has taken corrective action to comply with its recommendations.
As above-mentioned, the European Commission scrutinized the UK’s economy, it particularly looked into developments covering both the external and internal dimensions of the UK economy. The Commission concluded that the UK is experiencing macroeconomic imbalances, particularly as regards developments related to external competitiveness, household indebtedness and the housing market. According to the European Commission “The United Kingdom is experiencing macroeconomic imbalances, which deserve monitoring and policy action. In particular, macroeconomic developments in the areas of household debt, linked to the high levels of mortgage debt and the characteristics of the housing market, as well as unfavourable developments in external competitiveness, especially as regards goods exports and weak productivity growth, continue to deserve attention.”
The European Commission chiefly noted, “As regards external competitiveness, the UK experienced a large drop in export market shares from 2007 to 2010.” The Commission has stressed “The trade balance has been negative since 1997, mainly as the result of a chronic deficit in goods trade.” In fact, the Commission said, “As regards trade in goods, the balance has been in a persistent deficit since the early 1980s and productivity levels in the manufacturing sector have fallen behind those of other highly-advanced economies.” Moreover, according to the European Commission “The deterioration in the UK's current account balance in 2012 was mainly due to weaknesses in external demand and foreign income, in particular from European countries, unfavourable developments in oil trade, and buoyant imports despite the economic recession.” Then, the Commission noted, “The government deficit, although decreasing, remains elevated while government debt is high and increasing.”
It is important to stress that although the UK is not subject to sanctions, it has been subject to the European Commission and Council policy recommendations and might be placed in Excessive Imbalance procedure, moreover it is subject to burdensome reporting requirements and surveillance missions from the Commission.
In May, the European Commission will put forward policy recommendations for the UK to correct imbalances, after assessing the UK National Reform Programme and the Convergence Programme. The European Commission will tell the Government how to boost the competitiveness of the UK economy. However, the EU has played a great part in Britain’s economic failures. The failure of the UK economy is not only because of the inherited deficit, but also because it cannot grow with a bankrupt EU. The trade deficit between the UK and the other EU member states continues to be a critical issue. In fact, in almost every year since Britain joined the Common Market it has incurred a balance of payments deficit. And, trade deficit means no growth. The UK cannot growth because 50% of its trade is with the EU and because it is strangled by Brussels’ red tape. The EU regulations and directives are undermining the Government’s ability to promote growth. This can only be retrieved through a new relationship between the UK and the EU. As Bill Cash said in an article to the Daily Telegraph “It is time we recognised that we will never reduce the deficit unless we renegotiate our entire relationship with the EU” and “This means profitable trading internationally and domestically so that we can regenerate our economic performance and, by reasonable taxation on private enterprise (particularly small and medium-sized businesses) and by EU deregulation, generate the revenue to pay for public expenditure such as hospitals and schools.”
Hence, as soon as David Cameron renegotiates the UK's relationship with the EU the better. As Bill Cash said, "What we need now is a referendum before the negotiations calling for our relationship with Europe to be based on trade and political cooperation, not European government. We would insist on the retention of our Westminster sovereignty, supported by what the cascade of opinion polls in recent years have demonstrated and what the British people clearly want."
