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Smarter and tougher economic governance dominate key committee votes

ECON Press release - Economic and monetary affairs20-04-2011 - 12:06

The "six-pack" set of laws revamping economic governance in the EU was backed by Parliament's Economics committee on Tuesday. A stronger policing role for the Commission, more transparent decision-making transparency, new sanctions, and restricting EU Member States' political wiggle room without choking off economically-beneficial spending are the key issues which MEPs will put on the Hungarian Presidency table.

Majority margins for some texts were slimmer than usual in Tuesday's emotionally-charged and tough-to-predict voting. Political groups differed as to how much emphasis to place on fiscal austerity and on the need to devise a set of rules which also gave Member States breathing space to continue their spending on growth-promoting investments. After the vote, the S&D group said that more would need to be achieved on growth-enhancing investment.

Balancing toughness and smartness

The main difficulty faced by lead MEPs was to strike a balance between stepping up the "automaticity" with which Member States reluctant to reform would have actions and sanctions imposed upon them, and allowing them to continue making investments that would be beneficial to their long-term health. The approved texts are tougher than what the Commission had proposed on "irresponsible" spending but, at the same time, they require the Commission to take more account of "good" spending when judging a country's reform efforts.

The texts step up recourse to "reversed qualified majority" voting, most notably on multilateral surveillance issues to do with evaluating Member States' stability programmes, recommending improvements to them, or deciding that they have done too little to fix fiscal policy (adjustment path). This will make it harder for Member States collectively to sweep problems under the carpet, since to do so, they would have to take a formal decision ignoring the Commission's decisions, a politically difficult move.

On the other hand, the texts introduce various details requiring that assessments take account of public investment that stimulates growth, job creation and other socio-economic benefits. Also, national reform programmes would need to provide specific details of plans for reform but also for investment which would support growth and jobs, clearly turning these programmes into plans not centred solely on austerity. Finally, the scoreboard indicators for highlighting macroeconomic imbalances such as low competitiveness or an overheating economy must take more account of socio-economic factors than had been proposed by the Commission, and their use cannot prejudice the rights of social partners and collective bargaining. MEPs also emphasise that the indicators must not be interpreted mechanically.

... also via stronger Commission policing

Member States' room for bargaining their way out of trouble is further reduced by a much stronger role given to the Commission in all phases of the various procedures. For example, in various instances it will be the Commission which is tasked with examining and judging a Member State's efforts and also with issuing certain warnings, rather than the Council, as had been proposed by the Commission. In other cases, the Commission will be at a policing par with the Council, whereas the Commission's original proposals had foreseen a role only for the Council. Equal policing by Council and Commission should make it more difficult for Member States to decide to ignore each others' problems, and also help to achieve the balance sought between toughness and smartness.

Transparency and ownership

The approved texts considerably increase the transparency and national "ownership" of the new economic governance system. Those responsible for Parliament's work on the package have long argued that this was one of the biggest weaknesses in the first ten years of economic and monetary union.

Council votes on imposing deposits and fines should be held in public, say the texts, except in crisis situations, when decisions can be taken behind closed doors. Furthermore, Council and Commission decisions are to be made public.

The committee texts also position the European Parliament as a vehicle for increasing transparency, by setting up structured dialogues in which governments, the Eurogroup President, and the Commission would explain their policies to MEPs. These "economic dialogues", as they are to be called, could be convened at the request either of Parliament or of governments.


The texts approved on Tuesday broadly follow the Commission proposals, but there are some new elements. First is a new one-off fine of 0.5% of GDP for countries caught fudging their accounts. Reversed qualified majority voting would apply for levying this fine, just as it would for other sanctions. Second, sanctions would kick in earlier than the Commission proposed for countries that disregard recommendations to correct their macroeconomic imbalances. An interest-bearing deposit of 0.1% of GDP would be imposed as soon as the Council decided that a Member State had failed to take corrective measures. The Commission proposal provided that a fine would be imposed only if a Member State disregarded two successive Council recommendations. Thirdly, in cases of deliberate and severe non-compliance with recommendations to correct macro-economic imbalances, fines could be increased from 0.1% of GDP to 0.3%.

Revenue from fines and interest from deposits should be allocated to the European Stability Mechanism, and until it is set up, to the European Investment Bank, rather than to Member States not running excessive deficits, as had been proposed by the Commission.

Other issues

On debt reduction, a Member State with debt above 60% of GDP would need to reduce its excess debt by an average of 5% per year over a three-year period, whereas the Commission had proposed a fixed 5% per year, over a three year period. On budget-setting standards, the committee text pushes for tougher fiscal rules to apply to euro zone members. The package as approved also calls on the Commission to table reports by the end of this year on establishing a system of common issuance of European sovereign bonds and establishing a European Monetary Fund under EU rules.

The approved texts also give a stronger legal backing to the European economic semester, some elements of the Euro Pact, and the National Reform Programme (NRP) procedures. These elements, which also constitute the broader economic governance framework, were felt to lack the legal backing needed to guarantee their effectiveness. Moreover, the NRP procedures are also strengthened to improve monitoring and compliance.

Next steps

Following a committee vote on Wednesday morning, a decision was taken to open talks with the Hungarian Presidency on the economic governance package. The decision was approved with 26 votes in favour and 14 against. 

The MEPs voting against argued that the somewhat slim majorities obtained by some of the reports adopted on Tuesday mean that it would be better to take the package before the EP plenary before opening negotiations with Member States.

The first talks between the EP negotiators and the Hungarian Presidency will begin on Wednesday at 13:00h.


In the chair: Sharon Bowles (ALDE, UK)

REF. : 20110418IPR18102