The EU/ECB/IMF "Troika" helped four EU countries out of the crisis and prevented it from getting worse. But flaws in the way the Troika worked hindered national "ownership" of economic reforms, and compromised transparency and accountability, says an Economic and Monetary Affairs Committee resolution passed on Monday.
The report on the committee's inquiry into the workings of the Troika, drafted by Othmar Karas (EPP, AT) and Liem Hoang-Ngoc (S&D, FR), was approved by 31 votes to 10, with 2 abstentions. It highlights many weaknesses and recommends urgent improvements. It also delves into the individual cases of each of the four "programme countries" (Greece, Ireland, Portugal, and Cyprus).
The report acknowledges that the immediate aim of avoiding disorderly defaults was achieved and that the challenges that the Troika was set up to tackle were "immense". It also deplores the fact that EU institutions were made a scapegoat for the adverse effects of reforms, even though it is finance ministers who should bear political responsibility for them.
A weakly-built system
The findings focus on problems internal to the Troika. "The three independent institutions of the Troika had an uneven distribution of responsibility between them, coupled with differing mandates, as well as negotiation and decision-making structures with different levels of accountability, all resulting in a lack of appropriate scrutiny and democratic accountability as a whole", says the text.
National parliaments were too often left out of the equation. "When consulted, national parliaments were faced with the choice between eventually defaulting on their debt or accepting memoranda of understanding negotiated between the Troika and national authorities", says the text, adding that European guidelines should be established to ensure appropriate democratic control of such measures..
The Troika system is also criticised for taking a "one-size fits all" approach, without due consideration for differing circumstances on the ground, and its inability to adapt policy prescriptions when these prove ineffective or based on wrong assumptions, as happened when forecast growth did not materialise and fiscal multipliers proved greater than anticipated.
EU finance ministers, particularly in the Eurogroup, are also criticised for failing to give clear and consistent political pointers to the Commission as regards the aims sought in return for financial assistance. In its de facto capacity as final decision-taker on financial assistance and conditionality, the Eurogroup is urged to shoulder its political responsibility for the bailout programmes.
As a first step, the report advocates laying down clear, transparent and binding rules of procedure for the interaction of the Troika institutions and regulating the allocation of tasks between them. An improved communication strategy is also an "utmost priority", says the text.
Adjustment programmes would also need to come with a "plan B" in case assumptions prove wrong. The memoranda of understanding which underpin all programmes will need to reflect the social and employment dimensions better, so that these are not sacrificed unnecessarily, as has sometimes been the case. Each country placed under a programme should moreover benefit from a "growth task force" to ensure that budget cuts are accompanied by growth-friendly measures. Finally, much better involvement of social partners, national parliaments and the European Parliament will be necessary, to ensure the vital accountability and sense of ownership.
In the medium term, the institutional setup of the Troika is first in line for reform. The report recommends a radical rethink, with the IMF to be used only "if strictly necessary", the ECB present only as a "silent observer", and the European Commission's role taken over by a "European Monetary Fund" (EMF). A proposal for the establishment of an EMF should be tabled by the Commission by the end of 2014.
These findings and recommendations will be put to a plenary vote in March, together with the findings of a parallel report drawn up and already adopted by the Employment and Social Affairs Committee. The next European Parliament will be invted to follow up the work done so far in greater depth.