EU: Excessive government deficits VII

We have seen that the Commission could issue an opinion (“first warning”) directly to a member state. The Commission could also make a proposal concerning the existence of an excessive government deficit. But the crucial decision about recommendations to a “sinning” member state would still be made by the Council on a recommendation by the Commission.

In essence, the Treaty of Lisbon does not change much, but preserves the basic intergovernmental character of the excessive deficit procedure (as in the current Article 104 TEC and Constitution Article III-184), despite the foray attempted by the European Convention (draft Constitution Article III-76).

The Treaty on the Functioning of the European Union (TFEU) rewrites the rules on qualified majority voting.

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This post adds some legal materials on the excessive deficit procedure.

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Protocols and Declaration

A number of Protocols are annexed to the Lisbon Treaty. The intergovernmental conference adopted a number of Declarations annexed to the Final Act.


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Protocol (No 12)

Protocol (No 12) on the excessive deficit procedure essentially reiterates the reference values (3 % of GDP deficit, 60 % of GDP debt) and other provisions of the existing Protocol. See the consolidated version of the Lisbon Treaty, in OJ 9.5.2008 C 115/279─280:

PROTOCOL (No 12)
ON THE EXCESSIVE DEFICIT PROCEDURE

THE HIGH CONTRACTING PARTIES,

DESIRING TO lay down the details of the excessive deficit procedure referred to in Article 126 of the Treaty on the Functioning of the European Union,

HAVE AGREED upon the following provisions, which shall be annexed to the Treaty on European Union and to the Treaty on the Functioning of the European Union:

Article 1
The reference values referred to in Article 126(2) of the Treaty on the Functioning of the European Union 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.

Article 2
In Article 126 of the said 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.

Article 3
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 these Treaties. The Member States shall report their planned and actual deficits and the levels of their debt promptly and regularly to the Commission.

Article 4
The statistical data to be used for the application of this Protocol shall be provided by the Commission.

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United Kingdom: opt-out

The United Kingdom stays outside the Eurozone for the time being, but the opt-out Protocol, taken over by the Lisbon Treaty, contains two paragraphs (4 and 5) specifically relevant to the excessive deficit procedure. Cf. OJ 9.5.2008 C 115/284:

PROTOCOL (No 15)
ON CERTAIN PROVISIONS RELATING TO THE
UNITED KINGDOM OF GREAT BRITAIN AND
NORTHERN IRELAND

THE HIGH CONTRACTING PARTIES,

RECOGNISING that the United Kingdom shall not be obliged or committed to adopt the euro without a separate decision to do so by its government and parliament,

GIVEN that on 16 October 1996 and 30 October 1997 the United Kingdom government notified the Council of its intention not to participate in the third stage of economic and monetary union,

NOTING the practice of the government of the United Kingdom to fund its borrowing requirement by the sale of debt to the private sector,

HAVE AGREED upon the following provisions, which shall be annexed to the Treaty on European Union and to the Treaty on the Functioning of the European Union:

1. Unless the United Kingdom notifies the Council that it intends to adopt the euro, it shall be under no obligation to do so.

2. In view of the notice given to the Council by the United Kingdom government on 16 October 1996 and 30 October 1997, paragraphs 3 to 8 and 10 shall apply to the United Kingdom.

3. The United Kingdom shall retain its powers in the field of monetary policy according to national law.

4. Articles 119, second paragraph, 126(1), (9) and (11), 127(1) to (5), 128, 130, 131, 132, 133, 138, 140(3), 219, 282(2), with the exception of the first and last sentences thereof, 282(5), and 283 of the Treaty on the Functioning of the European Union shall not apply to the United Kingdom. The same applies to Article 121(2) of this Treaty as regards the adoption of the parts of the broad economic policy guidelines which concern the euro area generally. In these provisions references to the Union or the Member States shall not include the United Kingdom and references to national central banks shall not include the Bank of England.

5. The United Kingdom shall endeavour to avoid an excessive government deficit.

Articles 143 and 144 of the Treaty on the Functioning of the European Union shall continue to apply to the United Kingdom. Articles 134(4) and 142 shall apply to the United Kingdom as if it had a derogation.

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Denmark: opt-out

The Danish Protocol also carries forward existing Protocol text (with necessary updates). It does not mention the excessive deficit procedure specifically, but participation in the third stage of economic and monetary union (EMU). Still, I thought that it would be convenient for readers to be able to compare the British and Danish texts directly, as they appear in the consolidated Treaty of Lisbon. Source: OJ 9.5.2008 C 115/287:

PROTOCOL (No 16)
ON CERTAIN PROVISIONS RELATING TO DENMARK

THE HIGH CONTRACTING PARTIES,

TAKING INTO ACCOUNT that the Danish Constitution contains provisions which may imply a referendum in Denmark prior to Denmark renouncing its exemption,

GIVEN THAT, on 3 November 1993, the Danish Government notified the Council of its intention not to participate in the third stage of economic and monetary union,

HAVE AGREED UPON the following provisions, which shall be annexed to the Treaty on European Union and to the Treaty on the Functioning of the European Union:

1. In view of the notice given to the Council by the Danish Government on 3 November 1993, Denmark shall have an exemption. The effect of the exemption shall be that all Articles and provisions of the Treaties and the Statute of the ESCB referring to a derogation shall be applicable to Denmark.

2. As for the abrogation of the exemption, the procedure referred to in Article 140 shall only be initiated at the request of Denmark.

3. In the event of abrogation of the exemption status, the provisions of this Protocol shall cease to apply.

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Declaration 30

From derogationary exemptionalists we turn to the soothing sounds of the joint Declaration (30) on Article 126 TFEU. As far as I could see, it is a slavish copy of Declaration (17) on Article III-184 of the Constitutional Treaty, including the oblique references to strengthening and clarifying the implementation of the Stability and Growth Pact (since weakened and muddled by the ‘new’ Stability and Growth Pact). The new Declaration, too, promises not to prejudge the future debate on the Stability and Growth Pact, perhaps in anticipation of the financial crisis and economic downturn now upon us.

Source, the consolidated version of the Lisbon Treaty: OJ 9.5.2008 C 115/347─348:

30. Declaration on Article 126 of the Treaty on the Functioning of the European Union
With regard to Article 126, the Conference confirms that raising growth potential and securing sound budgetary positions are the two pillars of the economic and fiscal policy of the Union and the Member States. The Stability and Growth Pact is an important tool to achieve these goals.

The Conference reaffirms its commitment to the provisions concerning the Stability and Growth Pact as the framework for the coordination of budgetary policies in the Member States.

The Conference confirms that a rule-based system is the best guarantee for commitments to be enforced and for all Member States to be treated equally.

Within this framework, the Conference also reaffirms its commitment to the goals of the Lisbon Strategy: job creation, structural reforms, and social cohesion.

The Union aims at achieving balanced economic growth and price stability. Economic and budgetary policies thus need to set the right priorities towards economic reforms, innovation, competitiveness and strengthening of private investment and consumption in phases of weak economic growth. This should be reflected in the orientations of budgetary decisions at the national and Union level in particular through restructuring of public revenue and expenditure while respecting budgetary discipline in accordance with the Treaties and the Stability and Growth Pact.

Budgetary and economic challenges facing the Member States underline the importance of sound budgetary policy throughout the economic cycle.

The Conference agrees that Member States should use periods of economic recovery actively to consolidate public finances and improve their budgetary positions. The objective is to gradually achieve a budgetary surplus in good times which creates the necessary room to accommodate economic downturns and thus contribute to the long-term sustainability of public finances.

The Member States look forward to possible proposals of the Commission as well as further contributions of Member States with regard to strengthening and clarifying the implementation of the Stability and Growth Pact. The Member States will take all necessary measures to raise the growth potential of their economies. Improved economic policy coordination could support this objective. This Declaration does not prejudge the future debate on the Stability and Growth Pact.

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Soon, we will start looking at the walking leg of economic and monetary union (EMU), Chapter 2 Monetary policy.


Ralf Grahn