2-pack: strengthening the economic and budgetary surveillance of Euro area Member States requesting or receiving financial assistance

Strengthening the stability and competitiveness of the European economy: MEPs vote on the '2-pack' to strengthen economic governance

In May 2012, Members of the Economic and Monetary Affairs Committee in the European Parliament adopted two proposals for a Regulation aimed at complementing the Economic Governance Package - or so-called 6-pack - adopted last September. The new proposals aim to make economic and budgetary coordination measures in the Eurozone more precise and quicker to implement and are referred to as the '2-pack'.

What is the 2-pack?

The 2-pack consists of two pieces of legislation which further strengthen the Stability and Growth Pact (SGP). It was proposed by the Commission in the light of recent events in the sovereign debt crisis, and is meant to add speed and teeth to the 6-pack. The new proposals apply only to the euro area.

Jean-Paul Gauzès is responsible in Parliament for the first regulation on strengthening the economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties with respect to their financial stability in the euro area. It allows the Commission to decide to subject a Member State to enhanced surveillance, including in those cases where there is sufficient evidence that a Member State is heading for difficulties. The Member State is then obliged to take action and is subject to enhanced information requirements, including on the health of its financial sector.

It would also be possible for the Commission to request that a Member State seek financial assistance (e.g. through the European Stability Mechanism, ESM), and to prepare a macro-economic adjustment programme. A series of articles in this regulation replace the procedures of the SGP.

In the second 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, the Commission intends to strengthen the requirements for  information from the Member States, including through the harmonisation of budgetary calendars. A steady stream of information flowing to Brussels is planned, eg. on the scope of the expected budgetary deficit. The Commission gets the right to require a Member State to present a new draft budget if there is a significant divergence between the draft and the requirements that were negotiated in the framework of the Stability and Growth Pact.

The Council may decide to put a Member State under enhanced surveillance, in which case additional information requirements would apply. If there is a danger that a deadline for the correction of an excessive deficit might not be respected, than the Commission gets the right to recommend measures for reducing the deficit, as well as a deadline to implement these.

What views in the European Parliament?

What can be observed here is a new battle fought along the lines of the 6-pack, to which the Left was heavily opposed. More than 500 amendments were tabled and they showed a number of new topics that Members would like to see added to the Commission's proposal.

EPP Group for strengthening the role of the EU

A Fiscal Compact (also referred to as the Stability Treaty) signed by 25 of the 27 EU Member States, and which aimed to foster budgetary discipline, is intergovernmental in nature and, as such, sits outside the EU's legislative process. MEPs from the EPP Group therefore wanted to add as many elements of the Fiscal Compact as possible to both texts, enshrining them in EU law and making them enforceable by EU institutions. Other groups followed, sometimes reluctantly, with the Socialists dragging their feet.

Mr Gauzès introduced elements of an orderly default, inspired by the US Chapter 11, into his report, thus allowing a Member State to restructure and regain access to the capital markets. This plan first was controversial within Parliament, and even more so outside, but gained a majority in the Economic and Monetary Affairs Committee (ECON).

He also advocated the introduction of Reverse Qualified Majority Voting (RQMV) to increase the automatic nature of decisions by shifting weight from the Council to the Commission. Under this system, the Commission decides, whilst the Council may overturn the Commission's decision by qualified majority within 10 days. This was adopted in committee.

Burdening the 2-pack with contradictory proposals

A number of groups, with the Liberals taking the lead, burdened the 2-pack with two new ideas. First a redemption fund, which would involve all present (but not future) eurozone Member States' debt above 60% of GDP being pooled into a single fund, which would be redeemed over a period of 25 years. In addition a growth fund would be created, which would be fed every year with as much as 1% of the eurozone's GDP (€140 billion) for the next 10 years. The issue of Eurobonds was also raised again.

The EPP Group, however, would have preferred to ask for a feasibility study on the redemption fund, rather than adding specific articles to the regulations. The EPP Group considered that the Council would reject this request.

Despite the contradictions between these two approaches, both were adopted in committee.

Votes in committee

Prior to the vote in committee in June 2012 compromise amendments were agreed upon on all points of the core proposal, be it the required majorities in Council, the participation of Parliament, the precise information requirements for the Member States under enhanced surveillance and many more points. These were adopted in committee.

The Socialists however threw the agreement into disarray by abstaining in the final vote. This means that an agreement between Parliament and Council before a vote in plenary was no longer possible and hopes for adopting the 2-pack in the summer of 2012 were dashed.

The Left didn't want the 2-pack, and tried in committee to hijack the proposals to achieve totally different aims. Their big hope was to put an end to fiscal consolidation and to avoid all measures that go along with it, such as structural reforms destined to restore competitiveness. Our hope was that common sense prevails, allowing a move towards a more stable and competitive European economy.

At the plenary vote of 13 June 2012 both reports were adopted with a comfortable majority, but no final vote was taken, as they were referred back to committee in order to pave the way for trilogues.

The EPP Group sided with Council and Commission throughout the procedure.

Trilogues

A series of rather tedious trilogues were held. Trilogues are negotiations between the Council and the European Parliament (EP), with the Commission being present in its role as technical adviser. The S&D negotiator's approach was so obstructive that the trilogues almost collapsed at several points in time. Agreement could eventually be found on all points of the core proposals, but both ALDE and the Left insisted on adding a European redemption fund as well as short-term eurobills to the articles of the regulations. It was only when Commissioner Rehn clearly stated that this wasn't possible under the present Treaty that their position started softening. Eventually the Commission made a declaration stating that it would ask a group of experts to deepen analysis of the possible merits, risks, requirements and obstacles of partial substitution of national issuance of debt through joint issuance in the form of a redemption fund and eurobills. ALDE and S&D then agreed to the final outcome of the trilogues.

On the substance of the dossiers no fundamental modification was made to the original Commission proposals, although a number of points were indeed scored by the EP. The EP now may invite representatives of the Council and of the Commission for a dialogue on the application of the regulations, and invitations can be extended to Member States, the IMF, the Commission and the ECB in the framework of economic dialogue. The rights to information of the EP have been strengthened and the Commission will have to be more open as far as their underlying economic models are concerned. The macroeconomic programmes will be made public. The list of precautionary financial assistance instruments will be published. The use of Reversed Qualified Majority Voting in the SGP has been extended. The consistency with the European Semester has been strengthened. Independent bodies for monitoring compliance with national fiscal rules have been defined. The reporting requirements for Member States have been strengthened. The Commission will have to present a report on public investments in the preventive part of the SGP.

Vote in plenary in March 2013

The EPP Group supports the trilogue's outcome. The report will go to plenary in the week of 11 March 2013. A positive outcome is expected.