The Council of EU finance ministers (ECOFIN) finally adopted the package of six legislative proposals to strengthen the economic governance of the EU. euinside has followed in details the new legislation all the way - from the Commission's proposals last year, through the difficult and lengthy negotiations between the Parliament and the Council, to the compromise and the adoption by Parliament in late September. Once ECOFIN gave a green light too, the new legislation can enter into force. The finance ministers urge the Commission to implement it immediately, yet from the beginning of the 2012 European semester.
The ministers discussed in particular the new procedure for surveillance and correction of macroeconomic imbalances and its enforcement mechanism under the Excessive Imbalances Procedure (EIP). The assessment of imbalances will be made by the Commission based on a scoreboard of indicators. According to the Commission’s proposal the following areas will be monitored: current account balance, net international investment position, export market shares, nominal unit labour costs, real effective exchange rates, the evolution of unemployment, private sector debt, private sector credit flow, house prices, and the general government sector debt.
The ECOFIN conclusions note that "whereas the sustainability of public finances is assessed under the Stability and Growth Pact, the Council welcomes the Commission’s intention under the Excessive Imbalances Procedure to consider general government sector debt solely to assess its specific contribution to problematic macroeconomic imbalances." Ministers stress the need for additional indicators, proposed by the Commission and taking into account the developments of different components of productivity, as well as financial sector indicators (from 2013).
"The Commission should in particular take account of the net external debt as well as the share and composition of foreign direct investment and developments of the capital account in Member States." Moreover, ministers pay attention to the Commission to "ensure that structural features of catching-up economies and the EU transfers are appropriately taken into account."
In its proposal, the Commission notes that, unlike current account deficits, large and sustained surpluses do not raise concerns about the sustainability of external debt or financing capacity, which could jeopardise the functioning of the euro area and therefore they will not lead to sanctions under the excessive imbalance procedure.
The Council urges the Commission to regularly assess and if necessary update the indicators and their thresholds, as well as to use the latest available data, while being fully transparent what data are used. Ministers recall that the evaluation of indicators will be made in accordance with all relevant factors and national specificities, so that "crossing of one or more indicative thresholds need not necessarily lead to further steps in the Excessive Imbalances Procedure." Under the new rules, sanctions will be triggered by repeated non-compliance with the recommendations. For euro area countries sanctions are provided in the form of an annual fine of 0.1% of GDP.
Surveillance of macroeconomic imbalances will start with the Commission's first Alert Mechanism Report before the next European semester begins in early 2012. After a country by country evaluation according to the scoreboard each Member State will receive appropriate recommendations. Their implementation will be monitored throughout the Semester, along with monitoring of national budgets, Stability (Convergence) programmes and National reform programmes.