The EU Member States have agreed on a number of initiatives, in order to address challenges, emanating from unsustainable public finances amid a low growth environment.
Τhe European Semester was introduced in 2011 aiming to improve the ex-ante coordination of economic policies within the EU and to embed EU policy guidance into national policy-making, The Semester begins with the preparation of the Annual Growth Survey by the European Commission, towards December, which forms the basis for the discussions that take place at the European Council’s Summit, where general policy recommendations are set out and have to be followed by EU Member States. By the end of April, all EU Member States submit their Stability and Convergence Programmes, as well as their National Reform Programmes (Stability Programmes are prepared by countries that have adopted the euro, whereas Convergence Programmes are prepared by countries that use their own currency). Then, the Commission prepares a comprehensive assessment on these Programmes. The Commission’s assessment mainly covers budgetary policies, long-term fiscal sustainability issues, and structural policies and on that basis, proposes recommendations for each country separately to the ECOFIN Council. The ECOFIN Council discusses and adopts the recommendations, which are then endorsed by the European Council. Subsequently, Member States have to take them into account when formulating their national economic policies, including the formulation of their national budget.
After extensive negotiations between the Council and the European Parliament, in the context of the co-decision procedure, the so called “six pack” was adopted in December 2011. This new legal framework further strengthens economic governance, through the enhancement of the preventive and corrective arms of the Stability and Growth Pact. It also establishes minimum requirements for national budgetary frameworks and introduces a surveillance mechanism for macroeconomic imbalances. This new surveillance procedure, which aims at identifying imbalances in the competitiveness area, started off on the 14th of February 2012, with the publication of the first Alert Mechanism Report by the Commission, analysing its preliminary findings. The role of the Report is to initially identify Member States considered to warrant further in-depth analysis, in order to determine whether imbalances actually exist and whether these are harmful. The Commission, based on the in-depth analysis, and if appropriate, addresses policy recommendations to the relevant country, under the preventive or the corrective arm of the procedure, depending on the state of the imbalance. The Presidency will assess the progress made on the compliance to the strengthened Stability and Growth Pact and take stock of the progress and overall procedure in relation to the new surveillance mechanism.
Following the adoption of the six-pack, the Commission presented two additional legislative proposals, aimed at strengthening the surveillance mechanisms and promoting further economic integration and convergence in the euro area. The two proposed Regulations build on what has already been agreed in the ‘Six Pack’ set of legislative measures and complement the overall enhanced Stability and Growth Pact. Given the deeper interdependence of the euro area countries, the Commission proposed and the Council adopted the enhancement of coordination and the surveillance of budgetary processes for all euro area Member States and especially those under the excessive deficit procedure, experiencing or at serious risk of financial instability, or under a financial assistance programme.
The proposed Regulation on strengthening economic and fiscal surveillance of euro area countries, facing or threatened with serious financial instability sets out explicit rules for enhanced surveillance. This Regulation is applicable in three cases:
- for countries facing severe difficulties with regard to their financial stability;
- those in receipt of financial assistance on either a precautionary basis or as part of a full-scale assistance programme, and
- for countries that are in the process of exiting such assistance.
The European Commission will be able to decide whether a Member State experiencing severe difficulties with regard to its financial stability should be subject to enhanced surveillance. The ECOFIN Council will also have the right to issue a recommendation to such Member States to take precautionary measures or to prepare a draft macro-economic adjustment programme.
The proposed 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 requires all Member States to present their draft budgets at the same time each year and give the Commission the right to assess and, if necessary, issue an opinion on them. The Commission can request that these drafts be revised, should it consider them to be seriously non-compliant with the policy obligations laid down in the Stability and Growth Pact. The Presidency will work to ensure the successful incorporation of these two Regulations in the enhanced Stability and Growth Pact.
At the European Council meeting in March 2012, a new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union was signed by all EU Heads of State and Government with the exception of the United Kingdom and the Czech Republic. This intergovernmental Treaty aims, among other, to strengthen further fiscal coordination through the introduction of provisions of a balanced budget rule and an automatic correction mechanism. This mechanism will be triggered in the event of deviation from a predetermined path towards the achievement of the Medium Term Objective or deviation from the medium term objective itself. This automatic mechanism will be defined by each Member State on the basis of principles proposed by the European Commission. Following the completion of the ratification procedure by at least twelve of the Contracting Parties, the provisions of the Treaty will have to be incorporated into national legislation, at constitutional or equivalent level. The Treaty, which is expected to enter into force by the end of February 2013, constitutes a major step in addressing market concerns brought by the sovereign debt crisis and in paving the way back to sound public finances and financial stability in the euro area, thus creating a sound basis for the future economic growth in the European Union. The Presidency will monitor the process so as to achieve a smooth ratification within the set deadlines.
In the context of the new economic governance in the EU, the Heads of State and Government in the euro area Member States, together with other six non-euro area countries (Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania ), agreed in March 2011, to adopt the Euro Plus Pact. This Pact represents a complementary framework targeting structural reforms. The participating countries have committed to implement specific measures in the areas of competitiveness, employment, sustainability of public finances and the financial sector. Each Member State identifies specific measures in each of the areas, in order to attain goals set. On an annual basis, the Heads of State and Government outline and review the identified measures and the strategy addressing the challenges and bottlenecks within these four areas. In this context, national ownership of identifying the measures is secured. The Presidency will contribute in ensuring the effective implementation of the commitments of the euro area Members in the framework of the Euro Plus Pact.
The Euro area Member States have established a permanent crisis mechanism for euro area countries (European Stability Mechanism-ESM), aiming at safeguarding macroeconomic stability through the provision, where needed and under strict conditions, of financial assistance to Member States. This mechanism succeeds the temporary European Financial Stability Facility (EFSF) and European Financial Stabilisation Mechanism (EFSM). The mechanism is designed to provide financial assistance through loans, interventions in the primary and secondary markets, recapitalisation of banks and precautionary programmes. Its capital stock of €700 billion consists of €80 billion in paid-in capital and €620 billion in callable capital. National contributions are established using a special contribution key. The contribution of member states in capital will only be used in cases of non payment by the borrowing country. On the 30th of March 2012, Eurogroup decided to add €200 billion, amount already provided by EFSF in loans, to the initial capacity of ESM of €500 billion. This arrangement will hold until July 2013 and after that the capacity will be limited to the capacity of €500 billion of ESM. For the provision of economic support, ESM will draw liquidity from the markets, by issuing financial instruments.