Common solutions to put Europe back on track

12.03.2014 - 11:15
Frankfurt, EZB, Banking & Euro

Over the past five years, the economic, financial and fiscal crisis has confronted the European Union with one of its greatest ever challenges. The EU did not cause the crisis, which was the result of mismanagement of public finances by national governments, irresponsible behaviour in financial markets, and also problems originating outside Europe. But the crisis has demonstrated the need for increased economic cooperation at European level and for stronger governance in the European Union. The EPP political family has played a major role in establishing new tools to strengthen economic governance. Unlike the Parliament’s Left, the EPP Group’s main goal was to prevent a sovereign debt crisis from happening again, and so it worked ceaselessly to establish a sound and sustainable economic and fiscal framework in the EU.

Since 2008, the EPP political family, which has been in government in a majority of EU Member States, has acted quickly to counter the crisis by initiating concrete measures. These include financial assistance to countries facing exceptional circumstances to avoid the risk of default on Member States’ debt, as well as long-term steps to decisively reduce over-indebtedness and increase surveillance of Member States’ economic and fiscal policies.

The EPP Group took a leading role in drafting and pushing for eight crucial pieces of legislation that were adopted in two sets of measures - the so-called 'Six-Pack', which applies to all EU Member States, and the 'Two-Pack', applicable to eurozone members only. Aimed at strengthening economic policy coordination and preventing future debt crises, these new tools establish a sound and sustainable economic and fiscal framework. The EPP Group was the driving force in shaping both legislative packages in the face of attempts by the European Parliament's Left to weaken rules on economic and budgetary discipline. A major outcome of this political success is that surveillance procedures are now even tougher than originally proposed by the Commission.

In addition, the EPP Group consistently supported action taken to safeguard the euro as well as the adoption of the Fiscal Compact(Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, which was negotiated under the initiative of German Chancellor Angela Merkel and former French President Nicolas Sarkozy and entered into force on January 1st, 2013). Both measures were crucial in rebuilding the stability and the international reputation of the eurozone. The eurozone has not only withstood this pressure, but even grown from 17 to 18 members at the beginning of 2014.


1.  Strengthened European economic governance at EU level (Six-Pack)

a) Giving real teeth to the Stability and Growth Pact: Four of the measures of the Six-Pack (EU law since December 2011) enhance budgetary surveillance and dramatically increase the effectiveness and scope of the Stability and Growth Pact (established in 1997 ahead of the introduction of the euro, but criticised for its lack of adaptability and subsequently relaxed). Based on the principle that economic policies are a matter of shared concern for all Member States, the strengthened Stability and Growth Pact  is a core precondition for achieving more growth and for preventing that the debt burden be passed on to our children and future generations.

  • A more effective Excessive Deficit Procedure (EDP):The new rules reinforce both the preventive and corrective arms of the Stability and Growth Pact. Surveillance now covers both budget deficits and debt levels. Infringement procedures are started at an early stage against Member States significantly deviating from either the 3% of GDP government deficit criteria or from the 60% of GDP debt threshold, or if the country is not meeting the objectives at a satisfactory pace, in order to avoid late corrective mechanisms.
  • Gradual sanctions against eurozone members by reverse qualified majority voting:The EPP Group managed to introduce new rules on voting in the Council to make it more difficult for Member States to “escape” their responsibility. Now eurozone governments would need a qualified majority to reject a recommendation of the Commission to impose sanctions in case of non-compliance. In other words, there is now an almost automatic procedure to reach a "final warning" decision, which is the first step towards imposing sanctions. Sanctions can reach 0.5% of GDP.   

b) Addressing macro-economic imbalances: The economic and financial crisis can in part be explained by economic imbalances, such as housing bubbles, high current account deficits and growing divergences in competitiveness between Member States. Two measures in the Six-Pack aim at identifying and correcting such imbalances at an early stage, before they negatively affect governments’ finances.

  • Excessive Imbalance Procedure (EIP): Similar to the Excessive Deficit Procedure (EDP) from the Stability and Growth Pact, the Excessive Imbalance Procedure can be activated when an excessive imbalance in a Member State could jeopardize the function of the EMU. The country concerned will have to prepare a 'corrective action' plan with a concrete roadmap and deadlines for implementation. The enforcement of the Excessive Imbalance Procedure is backed by sanctions for euro area Member States (up to 0.1% of GDP) in case of failure to take action or adequate corrections.


2.  Stepping up budgetary surveillance in the eurozone (Two-Pack)

The measures under the Two-Pack step up the surveillance of eurozone members’ national budgets and allow more oversight of the policy plans of countries in financial difficulty.

a) Monitoring and assessing eurozone countries’ draft budgetary plans:The new rules, appliedfor the first time in 2013 for the eurozone countries' 2014 national budgets, foresee a common budgetary calendar, with each eurozone Member State having to submit draft budgetary plans to the Commission and the Eurogroup by 15 October at the latest.

  • Autumn monitoring of budgetary plans: In case of significant divergence between the draft budget and the requirements negotiated in the framework of the Stability and Growth Pact, the Commission can require a Member State to present a new draft budget. This procedure complements the preventive arm of the Stability and Growth Pact, notably by ensuring appropriate integration of EU policy recommendations made in the context of the European Semester into the national budgetary preparations. It also increases peer pressure in the Eurogroup. Regardless of this procedure, national parliaments remain sovereign in voting on their national budget.
  • Enhanced surveillance and timely action to correct excessive deficits: The Council may decide to put a Member State under enhanced surveillance. Should there be a risk that a deadline for the correction of an excessive deficit might not be respected, the Commission has the right to recommend measures for reducing the deficit, as well as to set a deadline for implementation.

b) Clearer procedures for dealing with countries experiencing serious financial problems

  • Explicit procedures for enhanced surveillance of any eurozone country in distress: This new regulation provides a much more predictable way to deal with countries in severe difficulty, improving transparency and establishing mechanisms to ensure that austerity measures accompanying financial assistance do not kill off any potential for recovery.
  • Seeking financial assistance: A country heading for difficulties can request financial assistance, mainly through the European Stability Mechanism, and should prepare a macro-economic adjustment programme.


3.    Fiscal Compact

The EPP strongly welcomed the Treaty on Stability, Coordination and Governance of the Economic and Monetary Union, signed in March 2012 and which entered into force in 2013, also known as the “Fiscal Compact”. The Treaty strengthens the economic pillar of the Economic and Monetary Union by adopting a set of rules tightening fiscal discipline for all but 2 Member States. This Treaty, which was negotiated intergovernmentally, complements the already existing measures set out by the Six-Pack and the Two-Pack.

  • A principle of budget balance to be enshrined in binding national law, even in national constitutions: The Fiscal Compact's core principle is that the annual structural deficit must not exceed 0.5 % of GDP. In the event of significant deviations from country-specific medium-term objectives, a corrective mechanism will be triggered automatically. The EPP would have liked the principles of the Fiscal Compact to be included into EU Treaties.
  • Involvement of the EP and national parliaments: Although the agreement is an international treaty signed outside normal EU procedures, thanks to the work of the EPP Group during the negotiations, a constructive solution safeguarding the community method was achieved. The framework “borrows” the EU institutions for its functioning and involves the European Parliament (together with the national parliaments in a joint conference) in its implementation. This was a major success for the European Parliament. The Fiscal Stability Treaty was a crucial step in rebuilding the international reputation of the eurozone.



4.     Action to safeguard the stability of the euro

In 2010, in response to the sovereign debt crisis, the EU set up a temporary support mechanism for Member States experiencing financial difficulties, replaced in 2013 by a permanent European Stability Mechanism. These support measures are conditional on rigorous fiscal consolidation and reform programmes.

Thanks to the initiatives taken by the EPP political family, increased economic governance at European level has restored certainty and confidence, increasing the chances of economic recovery over the medium term. Since the measures adopted to increase economic and fiscal discipline do not simply focus on limiting the debt burden, but also provide strong incentives for growth-friendly reforms and policies, their adoption represents an important step in boosting competitiveness, growth and jobs in the European Union.


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