In order to address what was agreed at last October’s Euro Summit, the European Commission, in November 2011, put forward proposals to further deepening fiscal surveillance for euro area Member states. The European Commission presented a proposal for a regulation on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member states in the euro area and a proposal for a regulation on the strengthening of economic and budgetary surveillance of Member states experiencing or threatened with serious difficulties with respect to their financial stability in the euro area. The proposals are based on Article 136 which allows the Council to adopt specific measures to eurozone member states, in combination with Article 121(6) whereby “The European Parliament and the Council, … may adopt detailed rules for the multilateral surveillance procedure…” Both regulations would be directly applicable under the national law of member states whose currency is the euro. This is another step towards a fiscal union.
The proposals would give the Commission powers over national budget decision-making. The Commission has no legitimacy nor a democratic mandate to intervene in member states’ matters in this way, nevertheless the Eurozone leaders called for a speedy approval by the Council and the European Parliament of the Commission proposals. The draft regulations are subject to the ordinary legislative procedure, and QMV is required at the Council, but only eurozone Member states are allowed to vote. In fact, the Council has unanimously supported the draft regulations. On 21 February, the Council agreed a general approach on the so-called Economic governance – Second package ("Two-pack"), giving therefore a mandate for the Danish presidency to start negotiations on behalf of the Council with the European Parliament. According to the ECOFIN’s conclusions “The aim is to adopt the regulations in first reading, before the end of the Danish presidency.”
The European Parliament and the Council of Ministers will work towards reaching a first reading agreement on the two draft regulations aimed at further strengthening economic governance in the euro area therefore the proper consideration of the vital details of the legal texts would be sacrificed in a blind rush to adopt the legislative proposals before summer. Obviously, the behind close doors meetings would be fully used at the expense of a proper debate and analysis of the legislative proposals.
According to Barroso “We need to complement the democracy of nation states with the democracy of the European Union,” However, the Commission’s proposals are a threat to Member states' control of public finances, restricting national sovereignty and undermining democracy. There would be closer co-ordination, and direct supervision of the eurozone member states economic and budgetary policies. The Commission’s proposals are the beginning of the end of budgetary sovereignty for eurozone member states. One could wonder whether eurozone citizens are willing to accept more national sovereignty being given to Brussels. However, they have not been asked whether they accept a fiscal and political union with an economic policy imposed by Germany.
The Commission pointed out that member states are required, under the treaties, to “regard their economic policies as a matter of common concern and that their budgetary policies are guided by the need for sound public finances and that their economic policies do not risk jeopardising the proper functioning of Economic and Monetary Union.” Hence, under the Commission proposal, eurozone member states “should consult the Commission and other Member states whose currency is the euro before the adoption of any major fiscal policy reform plans with potential spillover effects, so as to give the possibility for an assessment of possible impact for the euro area as a whole.” In fact, “They should consider their budgetary plans to be of common concern and submit them to the Commission for monitoring purposes in advance of the plans becoming binding.”
The aim of the Commission proposal is to strengthen the surveillance of budgetary discipline in the eurozone member states. The member states subject to the excessive deficit procedure would be subject to closer monitoring. The Commission proposed a “synchronized monitoring” of member states budgetary policies. It proposed, therefore, a “common budgetary timeline” whereby member states would be required to “make public annually their medium-term fiscal plans in accordance with their medium-term budgetary framework based on independent macroeconomic forecast together with their Stability Programmes, no later than 15 April.” Then, the draft budget laws and the independent macroeconomic forecasts on which they are based shall, annually, be made public, no later than 15 October. Furthermore, budgets would have to be adopted and made public, annually, no later than 31 December.
Eurozone member states would be required to submit annually to the Commission and the Eurogroup their draft budgetary plans for the next year for monitoring purposes before the plans being submitted to national parliaments. The aim is to enable the Commission and the Eurogroup to examine national budgets in order to assess whether draft national budgets are in line with EU economic guidelines and rules on fiscal discipline before they are adopted by national parliaments and recommend changes. This would be another step towards fiscal integration. The plan is to transfer fiscal policy decisions from national parliaments to Brussels. Such proposal would allow the Commission to interfere in member states’s budget decision making. In fact, Barroso has accepted that “increased surveillance by the Commission will lead unavoidably to a greater role in domains previously restricted to national governments or parliaments.” Moreover he said, “This is necessary and indispensable if we want to have a common currency.” However, one can wonder whether the Commission has legitimacy to intervene in member states’ matters in this way, by taking control of member states budgets. Eurozone Member states would no longer be able to pursue their own economic and fiscal policies.
If the Commission believes that a member state is not complying with the Stability and Growth Pact’s budgetary policy obligations, it would be empowered, under the draft proposal, to recommend changes and even to request a revised draft budgetary plan from the Member State concerned. In order to increase the pressure upon eurozone member states such request would be made public.
The Commission would be allowed to give instructions on spending and taxation to eurozone member states.
Under the draft regulation, the Commission would adopt an opinion on the draft budgetary plans, that Member States would be invited to take into account in the process of adopting the budget. Obviously, this opinion would “include an assessment of whether or not the budgetary plans appropriately address the recommendations issued in the context of the European semester in the budgetary area.” The Commission would make an overall assessment of the budgetary situation and prospects in the euro area as a whole, which will be then discussed in the Eurogroup.
In the other hand, the eurozone member states who are already subject to an excessive deficit procedure would be monitored more closely. They would have to provide further information for the purposes of monitoring the progress towards the correction of the excessive deficit. If the Commission identifies risks in the compliance of a member state's deadline to correct the excessive deficit, it will issue a recommendation to that state for measures to be taken within a given timeframe. The Council when deciding whether effective action to correct the excessive deficit has been taken, it would also base its decision on whether or not member states complied with the Commission recommendations.
The competent committee of the European Parliament may invite the member state concerned by a Commission recommendation to participate in an exchange of views, meaning to explain their national budgetary plans and their national policies.
The European Commission also proposed a regulation on the strengthening of economic and budgetary surveillance of Member states experiencing or threatened with serious difficulties with respect to their financial stability in the euro area. The Commission has recalled “The economic and financial integration of the Member states whose currency is the euro calls for a reinforced surveillance to prevent a contagion from a Member State experiencing difficulties with respect to its financial stability to the rest of the euro area.”
Under the draft proposal, a eurozone member state who is experiencing/ at risk of experiencing “severe financial disturbance” would be subject to enhanced surveillance aiming at protecting “the other euro area Member states against possible negative spill over effects.” The European Commission would be allowed to decide whether to subject a member State experiencing severe difficulties with regard to its financial stability to enhanced surveillance. The member state concerned would have the possibility to express its views but that won’t change the Commission position that would then decide every six months whether to prolong the enhanced surveillance.
When requested, member states under enhanced surveillance would have to communicate to the Commission, the ECB and the European Banking Authority information on the financial situation of the financial institutions which are under the surveillance of its national supervisors as well as to undertake stress test and share the results with the Commission and ECB. They would be also required to communicate all information necessary for the monitoring of macro-imbalances. The Commission would carry out, in liaison with the ECB, regular review missions in the member state under surveillance to verify the progress made in the implementation of the measures required. Such missions would take place even if the member state concerned has not requested financial assistance.
If the Commission reaches the conclusion that the financial situation of the member state concerned has significant adverse effects on the financial stability of the euro area, it would put forward a proposal to the Council recommending to that member state to seek financial assistance and to prepare a macro-economic adjustment programme. The Commission would therefore tell those member states to seek a bailout. The Council would adopt such decision by qualified majority. Only eurozone member states are allowed to vote and the member state concerned has no vote. This has been the most controversial issue in the draft proposal. But, according to the Euobserver, this clause has been removed.
Such enhanced surveillance would entail broader access to information leading to a close monitoring of the economic, fiscal and financial situation and a regular reporting to the Economic and Financial Committee (EFC).
The Commission would be also allowed to decide whether to subject a member state receiving financial assistance on a precautionary basis from other countries, the EFSF, the ESM or the IMF, to enhanced surveillance. The member states, “requesting precautionary assistance” from the EFSF, the ESM, the IMF would be subject to the same type of surveillance.
The Commission would prepare, in liaison with the ECB, an analysis of the sustainability of the government debt of the member state who sought financial assistance from the EFSF or the ESM. In the end of the day, the European Commission would be given the power to administer member states facing severe financial difficulties.
A member state receiving financial assistance has to prepare a draft adjustment programme aiming at restoring its capacity to finance itself on the financial markets. On a proposal from the Commission, the Council shall approve the adjustment programme by qualified majority. The Commission and the ECB monitor the implementation of the programme and the member state concerned is required provide the Commission with all the necessary information.
There might be exchange of views on the implementation of the adjustment programme between the relevant Committee of the European Parliament and representatives of the member state concerned and representatives of the Commission may be invited by the Parliament of that member state to participate to an exchange of views on the progress made in the implementation of the adjustment programme.
A member state would be subject to a post-programme surveillance if a minimum of 75% of the financial assistance received from member states, the EFSM, the EFSF or the ESM has not been repaid. On a proposal from the Commission, the Council, acting on a qualified majority, may extend the duration of the post programme surveillance. The Commission will conduct with the ECB regular review missions in the member state under post programme surveillance to assess its economic, fiscal and financial situation. On a proposal from the Commission, the Council, acting by qualified majority, may recommend to the member state under post programme surveillance to adopt corrective measures.
It is important to recall the inter-governmental treaty on stability and convergence in the Economic and Monetary Union, which will be formally signed at the next European Council meeting on 1 March, provides that “Within five years at most following the entry into force of this Treaty, on the basis of an assessment of the experience with its implementation, the necessary steps shall be taken, in compliance with the provisions of the Treaty on the European Union and the Treaty on the Functioning of the European Union, with the aim of incorporating the substance of this Treaty into the legal framework of the European Union.” There is, therefore, a clear aim of incorporating this treaty into EU legal framework within five years of its entry into force. The incorporation of this treaty into the EU treaties would, obviously, entail a treaty change, which, accordingly, requires the agreement of all member states, including the UK. However, the aim is to integrate provisions of the draft treaty into the EU legal framework via secondary legislation, particularly through these proposals.
