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The New Measures for Disciplining the Eurozone Passed Narrowly by the ECON

Published on , , Sofia

MEPs from the Economic Committee (ECON) of the European Parliament adopted the so-called ‘Two pack’, which is part of the new legislation aimed at strengthening the EU economic governance. Because of a fragile majority, however, lawmakers decided not to enter into negotiations with the Council before the texts are voted in the plenary. The package includes two regulations proposed by the Commission on 23 November 2011, complementing the legislative package on economic governance (the so called ‘Six Pack’), adopted last year. The first regulation is aimed at strengthening economic and budgetary surveillance of Member States experiencing or threatened by serious difficulties, with respect to their financial stability in the euro area. The second regulation sets common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area.

On behalf of the Socialists, Elisa Ferreira, MEP(Portugal), who is rapporteur on the proposal for monitoring of budget plans and excessive deficit procedures of the eurozone countries, requested the vote to be postponed. The argument of the socialists was that the two proposals continued the course of austerity and promoting growth was still not sufficiently presented. "The world was a different place when the Commission made its proposals and the Council is also shifting its position on how much austerity is needed," Ms Ferreira said. The proposal to postpone the vote was supported by the Liberals, although on the ground that more work was needed on the two proposals.

The centre-right EPP group, however, opposed postponing: "Changes in the political environment happen all the time. We should vote because this legislation should enter into force as quickly as possible in view of the persisting crisis," said Jean-Paul Gauzes (EPP, France), who was rapporteur on the proposal on strengthening economic and budgetary surveillance of member states experiencing or threatened by serious difficulties in terms of their financial stability. Ultimately, the majority rejected the proposal to postpone the vote and both reports were adopted.

euinside has already analysed in detail the changes made by the rapporteurs in the initial Commission proposals. In Ferreira`s report, the powers of the European Commission, with respect to budgetary surveillance, are pretty restricted compared to the initial text, as the Commission will act on the principle of delegated powers. Its decisions will enter into force only if they are not opposed by Parliament and the Council within two months, as the period may be extended by another two months. The Commission will receive those delegated powers for a period of 3 years, which may be extended at the discretion of Parliament and the Council.

MEPs also insist on the need to ensure that fiscal monitoring does not hamper growth, so in its country-by-country assessments the EC should ensure that budget cuts are not at the expense of investment, education and health. Member states will have to submit a detailed explanation which of their investments had growth and jobs potential, and the deficit reduction timetables would be applied more flexibly. The EC is also expected to submit a proposal for a growth instrument which would mobilise around 1% of GDP per year over a ten-year period for infrastructure investment. "A decisive step to ease the burden of austerity in Europe has been taken," rapporteur Elisa Ferreira commented.

Her report proposes eurozone countries not just to coordinate their debt issuance but also mutualisation of their debt through the creation of Eurobonds (the so called Stability Bonds) and a Debt Redemption Fund. Especially pleased with the adoption of this amendment, proposed by ALDE Group, was liberal leader Guy Verhofstadt: "Member States must take this proposal seriously when they now meet to draw up a Growth Strategy for Europe. By mutualising part of the Member States' debt we will stop throwing money on high interest rates on sovereign debt, money that can be pumped instead into growth investments and projects." The EPP group, however, stated it could support the proposal to set up a Debt Redemption Fund only if it was backed by a concrete analysis that the EC should prepare by the end of the year.

Jean-Paul Gauzes` report on the proposal for strengthening economic and budgetary surveillance of Member States experiencing or threatened by serious difficulties has also brought significant changes to the initial Commission proposal. It introduces an entirely new procedure - placement of a member state under legal protection. If a Member State is at risk of enduring state of default or suspension of payments, the Commission may, after consulting the Council, adopt a decision placing the Member State under legal protection. Thus, in fact the Commission takes over the country`s governance and the relations with its creditors. Once under such protection, a country could not be declared to have defaulted, loan interest rates would be frozen and its creditors would need to make themselves known to the Commission within two months if they wanted their claims settled. National authorities must implement an adjustment programme, similar to countries with bailout loans and submit to the Commission a recovery and debt settlement plan for approval.

The European Commission is entitled to recommend a troubled member state to request financial assistance. "We have ensured that in the future no Member State can put at stake the whole financial stability of the EU system by empowering the Commission with the right, on the basis of its analysis in liaison with the ECB, to propose to the Council to recommend a Member State to seek financial assistance," Carl Haglund (ALDE, Finland) commented. The EU finance ministers have also discussed this issue at their meeting in January. They shared the opinion that a member state could be forced to ask for help, but it should be done in strict confidentiality until the decision on the loan was taken by the rescue fund.

Both texts were adopted with only a slim majority so lawmakers decided not to enter into negotiations with the Council, but to wait for the vote in the plenary instead. The centre-right group blamed the Socialists for the delay, but admitted that without a clear mandate it was forced to wait for the parliament's position in order to start negotiations. The Socialists, in turn, claimed that their message before the final vote was that the course of fiscal discipline and austerity should not continue and economic growth should be promoted.

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