With the ink hardly dry on the economic governance "six pack", more legislation was proposed in an attempt to stem the tide of Eurozone governance troubles. The texts have now been scrutinised and amended by Parliament's Economic and Monetary Affairs Committee. But as parties are clearly divided on what tone to give to the legislation, a mandate from the plenary is being sought before opening negotiations with Member States.
The "Two pack" as proposed by the Commission
The legislative proposals presented late in 2011 in the form of two texts build on the economic governance "six pack" legislation, hence the name "two pack", and focus on strengthening Commission surveillance of national budgetary and economic policy and further economic policy coordination.
The texts introduce detailed procedures for persuading Member States to amend their national budgets in line with Commission recommendations. The one dealing with countries in particularly serious financial difficulties or in receipt of financial assistance, provides for even more stringent rules, thereby ensuring that clear procedures for these circumstances are embedded in EU law.
The adopted texts grant the European Commission more control over Eurozone countries' fiscal policy, but not the free rein it asked for. The increased powers would be subject to more democratic control and the budget cuts suggested by the Commission should not be made at the expense of killing off investments with growth potential, not least those in education and healthcare.
The texts also propose a whole new chapter to directly stimulate growth and provide an immediate fix for the Eurozone crisis. The main elements of this chapter are:
setting up a European Debt Redemption Fund. This would mutualise all the Eurozone countries' debts in excess of 60% (around €2.3 trillion) within a common redemption fund. The repayment of this debt would then be carried out over 25 years, thereby buying time for structural reforms to be carried out properly and lowering the average interest paid to refinance this debt,
one month after the legislation enters into force, the Commission would be required to present a roadmap for introducing Eurobonds, and
also one month after the legislation enters into force, the Commission would be required to present a proposal for a growth mechanism, equal to 1% of GDP (around €100 billion), for infrastructure investment.
On the day of the vote, the Socialist group asked for a postponement of the vote scheduled for 14 May. The group's MEPs argued that the very recent changes in the EU's political landscape, notably the Presidential election in France and the legislative elections in Greece, required a return to the drawing board to review certain provisions of the "two pack", so as to reflect these political changes.
However, it was decided by a very narrow majority (21 in favour, 19 against, 3 abstentions) that the vote should go ahead and subsequently the two texts were adopted as follows:
extra Commission powers for national budget monitoring and correcting excessive deficits of Eurozone Member States (Rapporteur Elisa Ferreira (S&D, PT)): 18 in favour, 12 against, 14 abstentions, and
extra Commission powers to monitor the national budgets of Eurozone Member States with serious financial stability problems (Rapporteur Jean-Paul Gauzès (EPP, FR)): 25 in favour, 4 against, 13 abstentions.
As the Socialists abstained in both votes majorities were slim and the committee unanimously decided to postpone opening trialogue negotiations with the Member States. Instead, the two texts were referred to the plenary in order to gauge the level of support of the whole house for the texts.
Democracy and transparency
While the "two pack" proposals increase supranational power over national budgets, many amendments inserted in the text seek to emphasize democratic principles within the budgetary process and place limits on the power of the Commission through "delegated acts."
The text as voted aims to create a cooperative environment between the Commission and national parliaments and also to encourage the involvement of national social partners and civil society organizations.
Several amendments to the Commission's original proposal specifically protect wage formation practices and institutions. MEPs have also inserted more veto checks on the power of the Commission and added opportunities for parties to engage in economic dialogues (as defined in the "six-pack"), on points of contention.
Growth through clever cuts, Eurobonds and a redemption fund
The reports make it clear that the Commission's expanded fiscal oversight powers should not be used to hinder economic growth. With this in mind, the Commission's country-by-country assessments would need to be more comprehensive, to ensure that budget cuts are not made at the cost of killing off investments with growth potential.
Moreover, for countries being asked to make significant cuts, these efforts must not harm investments in education and healthcare. Member States would also be required to detail which of their investments had a growth and jobs potential and deficit reduction timetables would be applied more flexibly in exceptional circumstances or in a severe economic downturn.
The draft text sets up a European Redemption Fund (ERF) for all national debt exceeding 60% of a country's GDP (currently this would amount to around €2.3 trillion). This portion of debt would be paid back within 25 years, thus easing countries' debt refinancing burden for the immediate term and reducing the average interest paid to service that debt.
A country's debt under the level of 60% of its GDP would continue to be financed individually by that country. Together, the criteria lead to a joint liability on a part of the Eurozone's debts. The details mirror to a very large extent the proposals made last November by the German Council of Economic Experts which advises the German federal government and the German federal parliament.
The text also calls for a Commission proposal on a growth facility which would mobilise around 1% of the EU's GDP (around €100 billion) per year over ten years for infrastructure investments and for a roadmap for Eurobonds.
The text maintains the spirit of the Commission proposal, which provides for enhanced surveillance allowing the EU's executive to then work with the Member State in question to prepare a macroeconomic adjustment plan and if necessary recommend that the country to seek outside financial assistance.
The committee also chose to include an institutionalized mechanism to allow for a national default. The text gives the Commission US style Chapter 11 powers which would enable it to provide legal protection for any Member State that is at risk of default.
"Close-out netting" or "credit event" provisions would not be possible and loan rates on the country's debts would be frozen. In exchange, the Member State would be required to submit a debt settlement plan for approval by the Commission, and all creditors of the Member State would have to make themselves known to the Commission within two months or else forfeit their claim.
Stronger Commission powers
The committee also increased the Commission's powers in comparison to its own initial proposals, notably by providing for greater use of the "reversed qualified majority" rule for votes in the Council. For example, this rule would apply when the Commission recommends corrective measures to be taken by a country or when it requires new debt reduction plans to be submitted. Such decisions would be considered adopted unless the Council rejected them outright.