The Elysée summit of the European G8 members confirmed what these posts on EMU economic governance have been waiting for: The ‘exceptional and temporary’ government deficits above the reference value indicated by Article 104 TEC are just waiting to happen. The catchword now is ‘flexibility’.
Still, we turn to the current treaty level rules concerning excessive government deficits within the context of economic and monetary union (EMU). The protocol contains the reference values, waiting to be sidelined for the time being.
Protocol on excessive deficit procedure
Protocol (No. 20) on the excessive deficit procedure (1992), as published in the latest consolidated version of the treaties, OJ 29.12.2006 C 321 E/293─294:
THE HIGH CONTRACTING PARTIES,
DESIRING to lay down the details of the excessive deficit procedure referred to in Article 104 of the Treaty establishing the European Community,
HAVE AGREED upon the following provisions, which shall be annexed to the Treaty establishing the European Community.
The reference values referred to in Article 104(2) of this Treaty are:
— 3 % for the ratio of the planned or actual government deficit to gross domestic product at market prices;
— 60 % for the ratio of government debt to gross domestic product at market prices.
In Article 104 of this Treaty and in this Protocol:
— government means general government, that is central government, regional or local government and social security funds, to the exclusion of commercial operations, as defined in the European System of Integrated Economic Accounts;
— deficit means net borrowing as defined in the European System of Integrated Economic Accounts;
— investment means gross fixed capital formation as defined in the European System of Integrated Economic Accounts;
— debt means total gross debt at nominal value outstanding at the end of the year and consolidated between and within the sectors of general government as defined in the first indent.
In order to ensure the effectiveness of the excessive deficit procedure, the governments of the Member States shall be responsible under this procedure for the deficits of general government as defined in the first indent of Article 2. The Member States shall ensure that national procedures in the budgetary area enable them to meet their obligations in this area deriving from this Treaty. The Member States shall report their planned and actual deficits and the levels of their debt promptly and regularly to the Commission.
The statistical data to be used for the application of this Protocol shall be provided by the Commission.
Anchors are the reference values: Government deficit 3 percent of GDP and government debt 60 percent of GDP.
It is important to see that the deficits and debt levels refer to all levels of government, including social security funds.
The upcoming Eurogroup, ECOFIN and European Council meetings can be expected to tally the ‘exceptional and temporary’ deficits above previous levels.
How much beef is there still in the Stability and Growth Pact, already revised?