EU: Excessive government deficits IV

What does the EU Lisbon Treaty say about excessive government deficits? Let us take a look at our legal materials.

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The current Treaty establishing the European Community (TEC) was to become the Treaty on the Functioning of the European Union (TFEU), and generally the innovations as agreed in the 2004 IGC were to be inserted into the Treaty by way of specific modifications ‘in the usual manner’ (points 17 and 18, pages 6 and 7).

I found nothing specific in the mandate of the intergovernmental conference (IGC 2007 Mandate, Council document 11218/07, 26 June 2007) about Article 104 TEC or excessive government deficits.

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In Article 2, point 90 of the original Treaty of Lisbon (ToL) the IGC 2007 agreed on the following concerning Article 104 TEC (OJ 17.12.2007 C 306/71─72):

EXCESSIVE DEFICIT PROCEDURE

90) Article 104 shall be amended as follows:

(a) paragraph 5 shall be replaced by the following:

‘5. If the Commission considers that an excessive deficit in a Member State exists or may occur, it shall address an opinion to the Member State concerned and shall inform the Council accordingly.’;

(b) in paragraph 6, the word ‘recommendation’ shall be replaced by ‘proposal’;

(c) in paragraph 7, the first sentence shall be replaced by ‘Where the Council decides, in accordance with paragraph 6, that an excessive deficit exists, it shall adopt, without undue delay, on a recommendation from the Commission, recommendations addressed to the Member State concerned with a view to bringing that situation to an end within a given period.’;

(d) in the introductory words of the first subparagraph of paragraph 11, there is a change to the French which does not affect the English version;

(e) in paragraph 12, at the beginning of the first sentence, the words ‘its decisions’ shall be replaced by ‘its decisions or recommendations’;

(f) paragraph 13 shall be replaced by the following:

‘13. When taking the decisions or recommendations referred to in paragraphs 8, 9, 11 and 12, the Council shall act on a recommendation from the Commission.

When the Council adopts the measures referred to in paragraphs 6 to 9, 11 and 12, it shall act without taking into account the vote of the member of the Council representing the Member State concerned.

A qualified majority of the other members of the Council shall be defined in accordance with Article 205(3)(a).’;

(g) in paragraph 14, third subparagraph, the words ‘, before 1 January 1994’ shall be deleted.

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The TFEU table of equivalences confirms that Article 104 TFEU (ToL) in the original Treaty of Lisbon was to be renumbered Article 126 TFEU in the consolidated version, under the title ‘Economic and monetary policy’, renumbered Title VIII (OJ 17.12.2007 C 306/211─212).

(In the consolidated version of the Lisbon Treaty, OJ 9.5.2008 C 115, the Tables of equivalences start on page 361, but the ToL numbers have been omitted.)

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Consolidated Lisbon Treaty

Article 126 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/99─102:

Part Three Union policies and internal actions

Title VIII Economic and monetary policy

Chapter 1 Economic policy

Article 126 TFEU
(ex Article 104 TEC)

1. Member States shall avoid excessive government deficits.

2. The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors. In particular it shall examine compliance with budgetary discipline on the basis of the following two criteria:

(a) whether the ratio of the planned or actual government deficit to gross domestic product exceeds a reference value, unless:

— either the ratio has declined substantially and continuously and reached a level that comes close to the reference value,

— or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value;

(b) whether the ratio of government debt to gross domestic product exceeds a reference value, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace.

The reference values are specified in the Protocol on the excessive deficit procedure annexed to the Treaties.

3. If a Member State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report. The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors, including the medium-term economic and budgetary position of the Member State.

The Commission may also prepare a report if, notwithstanding the fulfilment of the requirements under the criteria, it is of the opinion that there is a risk of an excessive deficit in a Member State.

4. The Economic and Financial Committee shall formulate an opinion on the report of the Commission.

5. If the Commission considers that an excessive deficit in a Member State exists or may occur, it shall address an opinion to the Member State concerned and shall inform the Council accordingly.

6. The Council shall, on a proposal from the Commission, and having considered any observations which the Member State concerned may wish to make, decide after an overall assessment whether an excessive deficit exists.

7. Where the Council decides, in accordance with paragraph 6, that an excessive deficit exists, it shall adopt, without undue delay, on a recommendation from the Commission, recommendations addressed to the Member State concerned with a view to bringing that situation to an end within a given period. Subject to the provisions of paragraph 8, these recommendations shall not be made public.

8. Where it establishes that there has been no effective action in response to its recommendations within the period laid down, the Council may make its recommendations public.

9. If a Member State persists in failing to put into practice the recommendations of the Council, the Council may decide to give notice to the Member State to take, within a specified time limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation.

In such a case, the Council may request the Member State concerned to submit reports in accordance with a specific timetable in order to examine the adjustment efforts of that Member State.

10. The rights to bring actions provided for in Articles 258 and 259 may not be exercised within the framework of paragraphs 1 to 9 of this Article.

11. As long as a Member State fails to comply with a decision taken in accordance with paragraph 9, the Council may decide to apply or, as the case may be, intensify one or more of the following measures:

— to require the Member State concerned to publish additional information, to be specified by the Council, before issuing bonds and securities,

— to invite the European Investment Bank to reconsider its lending policy towards the Member State concerned,

— to require the Member State concerned to make a non-interest-bearing deposit of an appropriate size with the Union until the excessive deficit has, in the view of the Council, been corrected,

— to impose fines of an appropriate size.

The President of the Council shall inform the European Parliament of the decisions taken.

12. The Council shall abrogate some or all of its decisions or recommendations referred to in paragraphs 6 to 9 and 11 to the extent that the excessive deficit in the Member State concerned has, in the view of the Council, been corrected. If the Council has previously made public recommendations, it shall, as soon as the decision under paragraph 8 has been abrogated, make a public statement that an excessive deficit in the Member State concerned no longer exists.

13. When taking the decisions or recommendations referred to in paragraphs 8, 9, 11 and 12, the Council shall act on a recommendation from the Commission.

When the Council adopts the measures referred to in paragraphs 6 to 9, 11 and 12, it shall act without taking into account the vote of the member of the Council representing the Member State concerned.

A qualified majority of the other members of the Council shall be defined in accordance with Article 238(3)(a).

14. Further provisions relating to the implementation of the procedure described in this Article are set out in the Protocol on the excessive deficit procedure annexed to the Treaties.

The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the European Central Bank, adopt the appropriate provisions which shall then replace the said Protocol.

Subject to the other provisions of this paragraph, the Council shall, on a proposal from the Commission and after consulting the European Parliament, lay down detailed rules and definitions for the application of the provisions of the said Protocol.

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Proposal from the Commission

The difference between a proposal and a recommendation is more than semantic.

Here is a reminder of the significance of a proposal from the Commission, as laid out in the Treaty of Lisbon (consolidated version, OJ 9.5.2008 C 115/173):

Article 293 TFEU
(ex Article 250 TEC)

1. Where, pursuant to the Treaties, the Council acts on a proposal from the Commission, it may amend that proposal only by acting unanimously, except in the cases referred to in paragraphs 10 and 13 of Article 294, in Articles 310, 312 and 314 and in the second paragraph of Article 315.

2. As long as the Council has not acted, the Commission may alter its proposal at any time during the procedures leading to the adoption of a Union act.

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The following post is going to take a look at some comments concerning Article 126 TFEU.


Ralf Grahn