Euro Group 29 November 2011 on EFSF

Ahead of the Economic and Financial Affairs Council today, the finance ministers of the eurozone countries gathered in the informal Euro Group yesterday evening, 29 November 2011. You can watch the late press conference with the Euro Group president Jean-Claude Juncker, Commission vice-president Olli Rehn (Ecfin) and EFSF chief executive officer Klaus Regling (a little less than half an hour).

The EU Council Press Office offers a page with six documents concerning the European Financial Stability Facility (EFSF).

Business Insider and Bloomberg offer a condensated views of the technical work to leverage the EFSF, but the main finding is that fresh real money is not yet in sight to reach the one trillion euro goal.

The FT Alphaville blog says the problem is that it’s become more and more clear that whatever the final amount of firepower achieved through these options probably won’t be adequate. Talks are under way to involve the International Monetary Fund (IMF).

Meanwhile the clock keeps ticking for the eurozone.



Ralf Grahn

EU Council communications: quick response

The informal Euro Group did not make it to the front page Council news by Tuesday morning, but the press staff quickly published two visible items in prime place, at the top. The text leads you to a summary with useful links (although it could have linked to Regling's EFSF document as well), and the video recording offers you a short version of the press conference.

I salute the swift and constructive response(s) from the Council staff. Dear reader, If you have ideas for improvement, you can write a comment to the blog post.



Ralf Grahn

Eurozone reports and reactions – Italy hot stuff

Yesterday evening the chairman of the Euro Group, Jean-Claude Juncker, held a press conference (recorded, including questions and answers 35:33), together with the Commission vice-president Olli Rehn and the EFSF chief executive officer Klaus Regling.


Media reports and reactions

We take a look at some reports and reactions in the media regarding the eurozone meeting.

Bloomberg reports that payment of the next tranche of loan aid to Greece is possible by mid-December if the new government and the two main parties give a written commitment to the bailout terms, according to Juncker, who also replied that he knew who was going to be the following Greek prime minister.

Despite Juncker's answer about the next Greek prime minister, there is still no agreement according to Reuters. The report paints the former ECB vice-president Lucas Papademos as the front runner to head the transitional government of national unity until the election 19 February 2012. However, the news agency hedges its bets by mentioning the European ombudsman Nikoforos Diamandouros and the envoy to the IMF Panagiotis Roumeliotis.

Reuters provides quotes from the document on EFSF leverage Regling mentioned.


Italy hot stuff

Juncker pointed out that Italy is not undergoing an EU rescue programme. However, Italy experienced unprecedented speculation yesterday, from at least three angles.

Media speculated wildly on (1) the possible resignation of prime minister Silvio Berlusconi and (2) Italian bond yields surged towards the 7% level. Both bonds and (3) the stock market fluctuated on the conflicting rumours, positively on resignation and negatively on denial.

In the background we have a vote of confidence in the Italian parliament today, as well as the economic reforms sketched by Berlusconi.

Prime minister Silvio Berlusconi promised a string of reforms to the European Council 26 October 2011 and the European Central Bank, as described by EurActiv, Reuters and The Guardian. The Corriere della Sera had a report, but also the full text of Berlusconi's letter (in Italian).

The finance ministers meeting in the Ecofin Council today will keenly follow the political developments in Italy and the market reactions, and want to hear about concrete plans to put the promised reforms into practice.



Ralf Grahn

EU Council communications: Heard of the eurozone?

Is it irony, or what? We are in the middle of a crisis of some proportions in the eurozone (population 332 million). There are widespread fears that the euro house of cards might crash in a near future if the assembly line of ”comprehensive solutions” continues to provide too little, too late.

We also know that the finance ministers in the Euro Group met yesterday evening. However, when I arrive at the web page of the Council of the European Union very early in the morning, the latest news on offer are statements from the high representative Catherine Ashton about Northern Nigeria, Liberia, Syria, Japan, Israel and Japan – all worthy matters, of course.

If we click for more news, we have to go back to 1 November 2011 to find two joint press releases addressing economic issues. A week ago EUCO president Herman Van Rompuy and Commission president José Manuel Barroso jointly commented on the (then) latest developments in the eurozone, and they informed us about their upcoming trip to the EU-US summit in Washington DC at the end of the month.

I know that the Euro Group is an informal gathering, not a proper Council configuration, but some sense of priorities, responsiveness and flexibility would be appreciated.


Euro Group press conference

There does not seem to be even a scrap of paper for the public from the Euro Group meeting. You need to know what to look for, because the chairman Jean-Claude Juncker held a press conference (recorded, including questions and answers 35:33), together with the Commission vice-president Olli Rehn and the EFSF chief executive officer Klaus Regling, although most of their introductory comments were obviously read from papers. However, Regling repeatedly referred to an EFSF paper made available to journalists.



Ralf Grahn

Eurozone Monday: Follow-up to October EU summits

I presume that the finance ministers meeting in the Euro Group and Ecofin 7-8 November 2011 already have these additions to the Council background note in their files. Perhaps others would like to be spared the tedious search.


Follow-up to October meetings

For a deeper view on the main text of the background note (page 2) and the Annex (page 6) on the strategy employed to counter the crisis in the eurozone, you can consult the following recent Ecofin, Euro Group, European Council and eurozone summit documents:

Council confirms agreement on economic governance; Luxembourg, 4 October 2011 (14998/11; 5 pages), i.e. six-pack highlights

Communiqué by the Eurogroup on the Greek Economic Adjustment Programme; 21 October 2011 (1 page), with green light for the next tranche of aid, pending IMF approval, based on the Troika assessment under the first rescue programme for Greece; second rescue package being prepared

Extraordinary Council meeting Economic and Financial Affairs; Brussels, 22 October 2011 (15893/11; 8 pages), preparation of European Council, but conclusions devoid of substance

European Council 23 October 2011 conclusions (EUCO 52/11; 12 pages), with growth priorities including the Single Market Act, full implementation of the Services Directive, request for a roadmap for a fully integrated Digital Single Market, reduction of the administrative burden for businesses (Smart Regulation), putting into practice recommendations on budgetary policies and structural reform; energy, including energy efficiency, as well as research and innovation; y increase cofinancing rates and better targeting for EU funds; implementation of the new framework for economic governance and a strengthened role for commissioner Olli Rehn; an ambitioius second round for the European semester; stronger financial regulation at the EU and the global level; preparation of eurozone summits 23 and 26 October with Herman Van Rompuy designated president of eurozone summits, his report having been postponed to December; assertive external trade policy, based on bilateral and regional agreements with strategic partners; promoting economic ties with neighbourhood; promoting trade policy issues. The conclusions also dealt with G20 preparations, climate change and foreign policy, before a statement on the cessation of ETA's terrorist activities.

Statement of EU heads of state or government; Brussels, 26 October 2011 (3 pages), when the national leaders of all 27 EU member states were informed about the euro summit later in the day. They agreed to a text on the banking package, as part of the whole set of eurozone measures.

Euro summit statement; 26 October 2011 (15 pages), reiterated steps taken and outlined the second rescue package to Greece including haircuts of 50%, leverage for the EFSF, bank recapitalisation and funding, antional measures in addition to the six-pack, the European Semester and the Euro Plus Pact, possible Treaty changes. The eurozone summit also announced (Annex 1) ten measures to improve the governance of the euro area (many of the Franco-German proposals endorsed). Consensus on the banking package in Annex 2.



Ralf Grahn

Eurozone finance ministers Monday: background and gaps

The finance ministers of the Euro Group meet to ride the Greek rollercoaster on the slopes of the Apennines, well after markets open and close in Europe Monday, 7 November 2011.

Are we going to see solutions emerging in Greece and Italy ahead of the eurozone meeting and the full Ecofin Council on Tuesday?

The Annex to the Council background note offers a convenient one page summary of the ongoing work to alleviate the crisis in the eurozone (page 6). The overview would have been even better, had it linked to the relevant documents (although two documentary links about other items are provided in the preceding main text).

The documents of the Ecofin open sessions have not been updated (yet).

There are some gaps to fill. Observers of the European Union (eurozone) need the relevant documents, plus information about possible weekend developments in Greece and Italy.

For lively discussion about the eurozone challenges I recommend the multilingual aggregator of 873 euroblogs Bloggingportal.eu. You can read, comment and share.



Ralf Grahn

European Financial Stability Facility EFSF

Monday, 7 June 2010 the finance ministers of the eurozone countries, meeting in Luxembourg, issued a press release on the establishment of the € 440 billion European Financial Stability Facility (EFSF), which is meant to defend the stability of the euro area.

Here is a link to the press release from the Euro Group and the text in full, with a few explanatory notes inserted:



Terms of reference of the Eurogroup European Financial Stability Facility (Luxembourg, 7 June 2010)

In line with the decisions taken on 9 May within the framework of the Ecofin Council to safeguard financial stability in Europe, Ministers have established the European Financial Stability Facility as a limited liability company under Luxembourg law (Société Anonyme). To this end, they have agreed on the Articles of Association of the EFSF and on the Framework Agreement between euro area Member States and the EFSF.

The objective of the EFSF is to collect funds and provide loans in conjunction with the IMF [International Monetary Fund] to cover the financing needs of euro area Member States in difficulty, subject to strict policy conditionality. Euro area Member States will provide guarantees for EFSF issuance up to a total of € 440 billion on a pro rata basis [proportionately].

While the EFSF has been incorporated with Luxembourg as its sole shareholder to expedite its creation, all Member States of the euro area reconfirm their commitment to enter the capital of the EFSF as soon as possible. National legal procedures to participate in the Facility are well on track. The shareholding of each Member State in the EFSF will correspond to its respective share in the paid-up capital of the ECB [European Central Bank].

The obligation of euro-area Member States to issue guarantees for the EFSF debt instruments will enter into force as soon as a critical mass of Member States, representing 90% of shareholding, has completed the relevant national parliamentary procedures. The European Financial Stability Mechanism [See: Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism; OJEU 12.5.2010 L 118/1] managed by the Commission is already available to cover urgent financing needs, if necessary.

Ministers have agreed on a number of measures to ensure the best possible credit quality and rating for the debt instruments issued by EFSF, such as a 120% guarantee of each Member State's pro rata share for each individual bond issue and the constitution, when loans are made, of a cash reserve to provide an additional cushion or cash buffer for the operation of the EFSF. Member States have agreed that other mechanisms would be adopted if needed to further enhance the creditworthiness of the bonds or debt securities issued by the EFSF.

Ministers have also agreed to nominate their Eurogroup Working Group member (full or alternate) as director in the EFSF board to ensure close coordination between EFSF and the Eurogroup. A CEO will be appointed shortly.

The EIB [European Investment Bank] has confirmed its willingness to provide treasury management services and administrative support to the EFSF through a service level contract.

Ministers have also confirmed that the Commission is tasked to support, together with the EIB, the setting up of the EFSF and to contribute to its functioning. The Commission will ensure consistency between EFSF operations and other operations of assistance to euro area Member States. The Commission, in liaison with the ECB. is also tasked to negotiate the policy conditions attached to any loans provided by the EFSF and to assess compliance with these conditions.

Openness?

Every sign of progress in the stabilisation of the euro area is to be welcomed. The finance ministers have agreed on the name of the Special Purpose Vehicle, which has become the European Financial Stability Facility (EFSF), on its establishment, its Articles of Association and on an undisclosed Framework Agreement, as well as some practical management measures.

However, we have been promised a European Union which functions according to certain standards of government and governance (Article 1 TEU):

This Treaty marks a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as openly as possible and as closely as possible to the citizen.

The founding values of the EU include freedom, democracy and the rule of law (Article 2 TEU).

How does this government by press releases after the fact by an unofficial group of finance ministers fulfil the standards of democratic and transparent government?




Ralf Grahn

EU: Stability programme and elections in the Netherlands

On 9 June 2010 the Dutch are going to elect a new House of Representatives after the fall of the government led by Jan Peter Balkenende. Even such a “virtuous” country as the Netherlands was severely hit by the financial and economic crisis, so the new government coalition faces the difficult challenge to find a way to return to economic growth and fiscal prudence. Does this tally with the election campaign and voters' perceptions?



The current market turmoil and the end-of-the-eurozone prophecies raise two questions in my mind:

Are the prescriptions given in the latest spate of Council opinions wrong?

If not, do the governments lack credibility when it comes to restoring sustainable growth and budget discipline?

These questions are especially acute with regard to the PIIGS, but how about the Dutch, often seen as a hard-working Northern breed of the Germanic type?

This long blog series invites readers to judge the Council opinions and the prospects for corrective action for themselves.



Framework

The economic policies of the EU member states are regarded as a matter of common concern, but left to be coordinated among the governments (Article 121 TFEU). Some of these governments were really proud of this, when they announced the contents of the Lisbon Treaty.

With markets suddenly distrustful and many economists appearing as doomsday prophets, the economic policies have become a real concern – for everyone – but potential remedies seem to take a lot of flak.

As it is, stability programmes for eurozone countries on the one hand, and convergence programmes for member states still without the euro on the other hand, are part of the ongoing dialogue between the European Union and the member states.



There are some background remarks on economic policy coordination in the European Union in the blog post EU: Useful stability and convergence programmes? (3 June 2010). For a fuller view, you can read the provisions on economic policy in the Treaty on the Functioning of the European Union as well as the relevant protocols.



The Netherlands

The Council issues its assessments and recommendations individually for each member state.



Now in turn is the EU Council opinion on the stability programme of the Netherlands, which has been a member of the eurozone since 1999:



COUNCIL OPINION on the updated stability programme of the Netherlands, 2009-2012; published OJEU 4.6.2010 C 146/12


Even if it has taken the European Union more than a month to publish the Council opinions officially in the OJEU, they concern the economic prospects in the medium term. As such, they should be useful with regard to our initial questions.



Economic situation


On 26 April 2010 the Council of the European Union examined the updated stability programme of the Netherlands, which covers the period 2009 to 2012. The Council began its assessment with a brief description of the economic situation:

In 2009, economic activity experienced a severe contraction of 4 %. The fall in world trade hit the Dutch economy relatively hard, resulting in a negative contribution of net exports to growth. Domestic demand also put a drag on growth throughout the year as private consumption decreased due to important negative wealth and confidence effects, and investment suffered from decreasing demand, lower profitability and tightening credit conditions. Government consumption was the only demand component supporting economic activity, mainly due to the 1 % of GDP stimulus package implemented in line with the EERP [European Economic Recovery Plan]. For 2010, GDP growth is expected to be positive again, most likely driven by net exports on the back of the recovery in world trade. Private consumption is set to remain subdued, as real disposable income is negatively affected by lower wage growth and increasing unemployment and investment is expected to suffer from the low capacity utilisation rate, decreased profitability and still difficult credit conditions. The budgetary position eroded very quickly in 2009 from a surplus of 0.7 % of GDP in 2008 to a deficit of 4.9 % of GDP as a result of the recovery measures taken by the government in response to the economic crisis, the full working of the automatic stabilisers, and decreasing gas revenues. For 2010, a further deterioration is foreseen. The 2009 budget deficit in excess of the 3 % of GDP reference value triggered an excessive deficit procedure. In this context, the Council issued recommendations to the Netherlands in December 2009, setting 2013 as the deadline for correcting the excessive deficit. Bringing the deficit below 3 % of GDP by that date will be one of the main policy challenges for the Netherlands. Other challenges include addressing the long-term sustainability of public finances, the continued strengthening of confidence in the financial sector, and ensuring access to finance for the corporate sector.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 126 TFEU of 2 December 2009, the Council of the European Union invited the Netherlands to:

(i) in the context of the fundamental budget review, specify the measures supporting the consolidation from 2011 and especially in the following years, further strengthen the consolidation effort to secure the required average annual fiscal effort to bring the deficit below 3 % of GDP by 2013, and throughout the programme period use windfalls related to an improvement of the macroeconomic and fiscal outlook to accelerate the deficit reduction and the decline of the gross debt ratio back towards the reference value;

(ii) further improve the long-term sustainability of public finances by implementing structural reforms that curb the projected increase in age-related expenditure.

The Netherlands are also invited to provide more information on the path and the broad measures underpinning the envisaged consolidation in the outer years as soon as the information becomes available and at the latest in the EDP [excessive deficit procedure] chapter of the forthcoming Stability Programme.

Eurozone financial stability



On 31 May the European Central Bank (ECB) published its Financial Stability Review June 2010, which assesses the stability of the euro area financial system both with regard to the role it plays in facilitating economic processes and with respect to its ability to prevent adverse shocks from having inordinately disruptive impacts (page 7).

The Financial Stability Review (225 pages) offers a view of the inter-related financial markets and the consolidation measures of eurozone governments.




Naturally, the Netherlands is represented in the unofficial Euro Group, which plays an important part in the efforts to restore fiscal stability in the euro area. The Euro Group president is Jean-Claude Juncker, the prime minister of Luxembourg, where the finance ministers of the eurozone countries met today, Monday 7 June 2010.




Ralf Grahn

EU: Stability programme Spain

Portugal, Italy, Ireland, Greece and Spain: The abbreviation PIIGS has become shorthand for five troubled economies in the 16 member eurozone. Their total population is about 132 million, which is about 40 per cent of the euro area total (almost 330 million).

The current market turmoil and the end-of-the-eurozone prophecies raise two questions in my mind:

Are the prescriptions given in the latest spate of Council opinions wrong?

If not, do the governments lack credibility when it comes to restoring sustainable growth and budget discipline?

These questions are especially acute with regard to the PIIGS.

This long blog series invites readers to judge the Council opinions and the prospects for corrective action for themselves.



Framework

The economic policies of the EU member states are regarded as a matter of common concern, but left to be coordinated among the governments (Article 121 TFEU).

With markets suddenly distrustful and many economists appearing as doomsday prophets, the economic policies have become a real concern – for everyone.




Stability programmes for eurozone countries on the one hand, and convergence programmes for member states still without the euro on the other hand, are part of the ongoing dialogue between the European Union and the member states.



There are some background remarks on economic policy coordination in the European Union in the blog post EU: Useful stability and convergence programmes? (3 June 2010). For a fuller view, you can read the provisions on economic policy in the Treaty on the Functioning of the European Union as well as the relevant protocols.



Spain


The Council issues its assessments and recommendations individually for each member state.



Now in turn is the EU Council opinion on the stability programme of Spain, which has been a member of the eurozone since 1999:



COUNCIL OPINION on the updated stability programme of Spain, 2009-2013; published OJEU 4.6.2010 C 146/1


Even if it has taken the European Union more than a month to publish the Council opinions officially in the OJEU, they concern the economic prospects in the medium term. As such, they should be useful with regard to our initial questions.



Economic situation


On 26 April 2010 the Council of the European Union examined the updated stability programme of Spain, which covers the period 2009 to 2013. The Council began its assessment with a brief description of the economic situation:

After more than a decade of strong GDP growth, Spain went through a severe recession in 2009. The downturn was caused by a sharp fall in domestic demand mirroring the narrowing of macroeconomic imbalances accumulated during the boom phase and was aggravated by the global financial crisis. Notably, the credit boom has ended and the private sector has quickly increased its saving rate; the oversized housing sector has been shrinking with both lower prices and activity; the external deficit has declined from high levels; and, inflationary pressures have softened.

The downturn has led to dramatic employment losses and unemployment rates. The current crisis is taking a heavy toll also on Spanish public finances. Besides falling activity, fiscal developments reflect an accommodative policy response with the implementation of sizeable stimulus measures. Already in 2008, the government deficit exceeded 3 % of GDP and on that basis an excessive deficit procedure was opened in March 2009. The most recent step in this procedure was the issuance by the Council of a revised recommendation under Article 126(7) of the Treaty on the functioning of the European Union (TFEU) in December 2009, whereby Spain is called to end its excessive deficit situation by 2013. The main challenges ahead are the continuation of the adjustments, including the narrowing of the external deficit and rebalancing of the sources of GDP growth away from domestic demand, in particular the housing sector, and towards the external sector. That will require reforms to boost productivity and potential GDP growth, as well as to create jobs in a sustained way. At the same time, competitiveness has to be enhanced, also by means of appropriate cost-reducing policies, i.e. contained wage growth and mark-ups vis-à-vis trading partners. These structural competitiveness problems, together with cyclical factors, reflecting strong economic growth above its main trading partners, fuelled a sizeable current account deficit, which widened rapidly over the last decade, peaking in 2007, when it reached double-digit figures, before dipping to about half in 2009. Finally, if up to now the government sector has cushioned the sharp private sector retrenchment, there is no room to continuing doing so without further compromising fiscal sustainability. Thus, proceeding with a credible and sustained fiscal consolidation strategy is a main challenge for the years ahead.

Council recommendation

After a detailed discussion, and in the light of the Recommendation under Article 126(7) TFEU of 2 December 2009, the Council of the European Union invited Spain to:

(i) implement with rigour the ambitious fiscal plans envisaged in the programme so as to correct the excessive deficit by 2013, backing it up with concrete measures in the years beyond 2010, and stand ready to adopt further consolidation measures in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise; seize as prescribed in the EDP [excessive deficit procedure] recommendation any further opportunity beyond the fiscal efforts, including from better economic conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value;

(ii) in view of the projected increase in age-related expenditure and the rapid rise of the government debt ratio, improve the long-term sustainability of public finances also by implementing reforms to the old-age pension scheme as proposed by the Government;

(iii) ensure that the budgetary framework effectively supports the achievement of the outlined medium-term fiscal plans at all levels of the general government sector, and closely monitor adherence to the budgetary targets throughout the year;

(iv) ensure that fiscal consolidation measures are also geared towards continuing the improvement of the quality of the public finances in the light of the need for further adjustment of existing macroeconomic imbalances.

Spain is also invited to improve compliance with the data requirements of the code of conduct.

Eurozone financial stability



On 31 May the European Central Bank (ECB) published its Financial Stability Review June 2010, which assesses the stability of the euro area financial system both with regard to the role it plays in facilitating economic processes and with respect to its ability to prevent adverse shocks from having inordinately disruptive impacts (page 7).

The Financial Stability Review (225 pages) offers a view of the inter-related financial markets and the consolidation measures of eurozone governments.




Spain is currently the holder of the rotating Council presidency, including the Ecofin Council. Naturally, Spain is represented in the unofficial Euro Group, which plays an important part in the efforts to restore fiscal stability in the euro area. The Euro Group president is Jean-Claude Juncker, the prime minister of Luxembourg, where the next meeting is going to take place today, Monday 7 June 2010.




Ralf Grahn

EU: Stability programme Slovenia

The current market turmoil and the end-of-the-eurozone prophecies raise two questions in my mind: Are the prescriptions given in the latest spate of Council opinions wrong? If not, do the governments lack credibility when it comes to restoring sustainable growth and budget discipline?

With this blog series we invite readers to judge the Council opinions and the prospects for corrective action for themselves.



Framework

The economic policies of the EU member states are regarded as a matter of common concern (Article 121(1) TFEU). With markets suddenly distrustful and many economists appearing as doomsday prophets, the economic policies have become a real concern – for everyone.

Stability programmes for eurozone countries on the one hand, and convergence programmes for member states still without the euro on the other hand, are part of the ongoing dialogue between the European Union and the member states.



There are some background remarks on economic policy coordination in the European Union in the blog post EU: Useful stability and convergence programmes? (3 June 2010). For a fuller view, you can read the provisions on economic policy in the Treaty on the Functioning of the European Union as well as the relevant protocols.



Slovenia


The Council issues its assessments and recommendations individually for each member state.



Now in turn is the EU Council opinion on the stability programme of Slovenia, the first of the new member states to enter the eurozone (2007):



COUNCIL OPINION on the updated stability programme of Slovenia, 2009-2013; published in the Official Journal of the European Union (OJEU) 3.6.2010 C 144/22


Even if it has taken the European Union more than a month to publish the Council opinions officially in the OJEU, they concern the economic prospects in the medium term. As such, they should be useful with regard to our initial questions.



Economic situation


On 26 April 2010 the Council of the European Union examined the updated stability programme of Slovenia, which covers the period 2009 to 2013. The Council began its assessment with a brief description of the economic situation:

In the years preceding the crisis, Slovenia enjoyed solid economic growth driven by buoyant exports and investment. Rapid expansion ended in the last quarter of 2008 when the Slovenian economy was hit hard and rather abruptly by the global crisis, chiefly through the trade channel given Slovenia's high degree of openness. The economic slowdown after a phase of emerging risks of overheating and competitiveness losses is bringing about some adjustment of the economy: since the end of 2008, the inflation differential with the euro area and the external deficit have both gradually decreased, with the latter approaching balance in 2009.

As a result of the economic downturn, in conjunction with recovery measures taken in line with the European Economic Recovery Plan (EERP) and strong in-built expenditure dynamics, the Slovenian budgetary position deteriorated rapidly. The sharp increase in the general government deficit, from 1.8 % of GDP in 2008, to an estimated 5.7 % in 2009 led the Council to decide, on 2 December 2009, on the existence of an excessive deficit in Slovenia, with a deadline for the correction of this situation by 2013. Besides returning to sound public finances, including through further reforms of the pension system, key challenges for the Slovenian economy are strengthening its resilience and regaining competitiveness so as to be able to benefit fully from the global economic recovery. This requires a better alignment of wage and productivity developments and the implementation of structural reforms.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 126(7) TFEU of 2 December 2009, the Council of the European Union invited Slovenia to:

(i) rigorously implement the foreseen consolidation measures in 2010 and bring the deficit below the 3 % of GDP reference value by 2013 as planned by fully specifying, adopting and implementing the indicated expenditure- containment measures in line with the average annual fiscal effort recommended by the Council Article 126(7), while standing ready to adopt further consolidation measures in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) Recommendation materialise;

(ii) pursue efforts to enhance expenditure control and the enforceable nature of the multi-annual budgetary plans and improve public spending efficiency and effectiveness;

(iii) in view of the significant projected increase in age-related expenditure, further reform the pension system and set a more ambitious MTO [medium-term objective] that takes sufficiently into account the implicit liabilities related to ageing.

Eurozone financial stability



On 31 May the European Central Bank (ECB) published its Financial Stability Review June 2010, which assesses the stability of the euro area financial system both with regard to the role it plays in facilitating economic processes and with respect to its ability to prevent adverse shocks from having inordinately disruptive impacts (page 7).

The Financial Stability Review (225 pages) offers a view of the inter-related financial markets and the consolidation measures of eurozone governments.




Naturally, Slovenia is represented in the unofficial Euro Group, which plays an important part in the efforts to restore fiscal stability in the euro area. The Euro Group president is Jean-Claude Juncker, the prime minister of Luxembourg, where the next meeting is going to take place today, Monday 7 June 2010.




Ralf Grahn

EU: Stability programme Slovakia

Stability programmes for eurozone countries on the one hand, convergence programmes for member states still without the euro.




You can start by reading the background remarks on economic policy coordination in the European Union, in the blog post EU: Useful stability and convergence programmes? (3 June 2010).



You can then move on to the EU Council opinion on the stability programme of the latest eurozone entrant Slovakia, published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated stability programme of Slovakia, 2009-2012; OJEU 3.6.2010 C 144/17



Economic background


On 26 April 2010 the Council of the European Union examined the updated stability programme of Slovakia, which covers the period 2009 to 2012. The Council began its assessment with a brief description of the economic situation:

With an average real GDP growth rate of over 7 % over the period 2003-2008, Slovakia was one of the best performing EU countries during the boom phase. Sound macroeconomic policies over that period allowed avoiding large macroeconomic imbalances, which enabled Slovakia to adopt the euro in January 2009. However, given its large trade openness, the Slovak economy was strongly affected by the crisis. Real GDP is estimated to have fallen by 4.7 % in 2009, and the depreciation of neighbouring countries’ currencies implied a further appreciation of Slovakia's real effective exchange rate.

To contain the effects of the crisis, the authorities allowed a full operation of automatic stabilisers and, in line with the European Economic Recovery Plan, adopted anti-crisis measures in November 2008 and February 2009 (0.5 % of GDP for both 2009 and 2010). With the government deficit expected at some 6 % of GDP in 2009, on 2 December 2009 the Council decided on the existence of an excessive deficit and recommended its correction by 2013. Considering the weakening of Slovakia’s external competitiveness due to temporary depreciation of neighbouring countries’ currencies and widening fiscal imbalances during the crisis, a credible and sustainable reduction of the government deficit should be a key element of the authorities’ strategy for the coming years.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 126 TFEU of 2 December 2009, the EU Council invited Slovakia to:

(i) implement the deficit reducing measures in 2010 as planned in the budget, and back up the consolidation path for the following years with specific measures to secure the correction of the excessive deficit if possible by 2012, and by 2013 at the latest;

(ii) continue reforms of the pension system with a view to ensuring the sustainability of government finances;

(iii) implement the envisaged measures to further strengthen the fiscal framework, in particular the introduction of enforceable multiannual expenditure ceilings.

Eurozone financial stability



On 31 May the European Central Bank (ECB) published its Financial Stability Review June 2010, which assesses the stability of the euro area financial system both with regard to the role it plays in facilitating economic processes and with respect to its ability to prevent adverse shocks from having inordinately disruptive impacts (page 7).

The Financial Stability Review (225 pages) offers a view of the inter-related financial markets and the consolidation measures of eurozone governments.




Naturally, Slovakia is represented in the Euro Group, which plays an important part in the efforts to restore fiscal stability in the euro area. The Euro Group president is Jean-Claude Juncker, the prime minister of Luxembourg, where the next meeting is going to take place Monday, 7 June 2010.




Ralf Grahn

EU: Stability programme Malta

Stability programmes for eurozone countries on the one hand, convergence programmes for member states still without the euro.

You can start by reading the background remarks on economic policy coordination in the European Union, in the blog post EU: Useful stability and convergence programmes? (3 June 2010).



You can then move on to the EU Council opinion on the stability programme of the euro area country Malta, published in the Official Journal of the European Union (OJEU):



COUNCIL OPINION on the updated stability programme of Malta, 2009-2012; OJEU 3.6.2010 C 144/1



Economic background


On 26 April 2010 the EU Council examined the updated stability programme of Malta, which covers the period 2009 to 2012. The Council began its assessment with a brief description on the economic situation:

The global crisis has affected Malta chiefly through the trade channel, with the impact on the financial sector remaining contained. In 2009, economic activity contracted as exports, but also investment, contracted sharply, while private consumption is estimated to have been relatively stable on the back of resilient employment and some recovery measures in line with the European Economic Recovery Plan (EERP). The concomitant severe drop in imports is estimated to have led to a significant narrowing of the external deficit in 2009.

The impact of the downturn and some non-recurrent expenditure-increasing items in 2008 led to a significant widening of the general government deficit in 2008-2009 compared to 2007. Against this background, and taking into account the high debt ratio, the Council decided on 7 July 2009 on the existence of an excessive deficit in Malta and, on 16 February 2010, adopted a recommendation to correct this situation by 2011. In addition to restoring a sound fiscal position and improving long-term fiscal sustainability, given the expected increase in age- related expenditure, Malta faces the challenge of strengthening competitiveness to improve the economy's resilience to future external shocks. This will require, on the one hand, raising human capital, unlocking business potential and continuing efforts to move towards higher value-added activities and, on the other, promoting an efficient wage setting process that allows a close link between wage and productivity developments.

Council recommendation

After a detailed discussion, and in the light of the recommendation under Article 126(7) TFEU of 16 February 2010, the Council of the European Union invited Malta to:

(i) achieve the 2010 deficit target of 3.9 % of GDP, if necessary by adopting additional consolidation measures; back up the strategy to bring the deficit below 3 % of GDP in 2011 with concrete measures while standing ready to adopt further consolidation measures in case risks related to the fact that the macroeconomic scenario of the programme is more favourable than the scenario underpinning the Article 126(7) recommendation materialise; and considerably strengthen the strategy for 2012 to ensure an adjustment towards the MTO [medium-term objective] in line with the requirements of the Stability and Growth Pact; seize, as prescribed in the EDP [excessive deficit procedure] recommendation, any opportunity beyond the fiscal efforts, including from better economic conditions, to accelerate the reduction of the gross debt ratio towards the 60 % of GDP reference value;

(ii) in view of the significant projected increase in age-related expenditure, improve the long-term sustainability of public finances by implementing further reforms of the social security system;

(iii) strengthen the binding nature of the medium-term budgetary framework and improve the monitoring of budget execution throughout the year, and enhance the efficiency of public spending, especially in the area of health.

Malta is also invited to provide more information on the broad measures underpinning the envisaged consolidation measures in the EDP chapter of the stability programme.

Eurozone financial stability



On 31 May the European Central Bank (ECB) published its Financial Stability Review June 2010, which assesses the stability of the euro area financial system both with regard to the role it plays in facilitating economic processes and with respect to its ability to prevent adverse shocks from having inordinately disruptive impacts (page 7).

The Financial Stability Review (225 pages) offers a view of the inter-related financial markets and the consolidation measures of eurozone governments.



The Euro Group plays an important part in the efforts to restore fiscal stability in the euro area. Its president is Jean-Claude Juncker, the prime minister of Luxembourg, where the next meeting is going to take place Monday, 7 June 2010.






Ralf Grahn

EU: Stability programme Luxembourg

Stability programmes for eurozone countries on the one hand, convergence programmes for member states still without the euro; you can start by reading the background remarks on economic policy coordination in the European Union, in the blog post EU: Useful stability and convergence programmes? (3 June 2010).



You can then move on to the EU Council opinion on the stability programme of the euro area country Luxembourg, published in the Official Journal of the European Union (OJEU):




COUNCIL OPINION on the updated stability programme of Luxembourg, 2009-2014; OJEU 2.6.2010 C 143/12



Economic background


On 26 April 2010 the EU Council examined the updated stability programme of Luxembourg, which covers the period 2009 to 2014. The assessment began with a brief description of the economic situation:

The Luxembourgish economy was severely hit by the crisis: real GDP, after zero growth in 2008, dropped by 3.9 % in real terms in 2009, according to most recent estimates, as all demand components went down, with the exception of public expenditure. The contribution of net exports remained positive as imports dropped even more than exports, probably due to a collapse in equipment investment. The financial sector seems to have been less affected by the crisis than could have been expected, even if at the end of 2008 the Luxembourgish authorities had to organise a support operation for two of the country's largest banks which belong to international groups. Employment still rose by 1.2 % on average in 2009 but exclusively thanks to the carry-over resulting from the very strong growth recorded in 2008 (+ 4.7 %). It only slightly decreased in the financial sector but much more strongly in the industry. Unemployment increased from 4.9 % in 2008 to 5.7 % on average in 2009, despite the massive recourse to short-time working encouraged by the authorities. The main challenge for Luxembourg at the current juncture is to maintain and develop the favourable conditions that have made possible the remarkable growth experience of the latest 25 years based on the country's increasing specialisation in services activities, especially financial services. Moreover, as far as budgetary policy is concerned, the long-term perspective deserves full attention. First, the rise in expenditure has been rather strong in recent years and the recurrent surpluses have essentially been made possible by buoyant revenues, the continuation of which is not certain. Moreover, due for a large part to the generosity of the country's pension system, the rise in age-related expenditure is projected to be one of the strongest in the EU.

Council recommendation

After a detailed discussion the Council of the European Union invited Luxembourg to:

(i) start fiscal consolidation as from 2011 with a view to bringing the deficit below the 3 % of GDP threshold and effect the measures that will be needed to achieve this consolidation; and

(ii) in view of the significant projected increase in age-related expenditure, improve the long-term sustainability of public finances by reforming the pension system and set a MTO [medium-term objective] that takes sufficiently into account the implicit liabilities related to ageing.

Eurozone financial stability



On 31 May the European Central Bank (ECB) published its Financial Stability Review June 2010, which assesses the stability of the euro area financial system both with regard to the role it plays in facilitating economic processes and with respect to its ability to prevent adverse shocks from having inordinately disruptive impacts (page 7).

The Financial Stability Review (225 pages) offers a view of the inter-related financial markets and the consolidation measures of eurozone governments.



The Euro Group plays an important part in the efforts to restore fiscal stability in the euro area. Its president is Jean-Claude Juncker, the prime minister of Luxembourg.




Ralf Grahn

Tracking eurozone crisis measures: Activating financial support for Greece

The moment of truth for Greece arrived. On 23 April 2010 the president of the Euro Group, the European Commission and the ECB took note of the request by the Greek government to activate the financial support mechanism, which was being prepared by the Commission, the ECB and the IMF (press release IP/10/446).




A few days later, amidst speculation on the markets, the president of the European Commission José Manuel Barroso made a statement on the progress being made on the programme (28 April 2010; MEMO/10/157). The following day came a calming statement from commissioner Olli Rehn regarding the work on the Greek programme to reverse the debt spiral and to restore competitiveness.



On 2 May 2010 the euro area member states and the IMF agreed with Greece on three year financial support programmes of up to € 110 billion, of which € 30 billion to be made available by the eurozone members in 2010.

Commissioner Olli Rehn and IMF managing director Dominique Strauss-Kahn recognised that the programme demands great sacrifice from the Greek people. A sustained, multi-year effort will be needed.



The statement by the Eurogroup gave the seal of approval by the eurozone member states, saying that

… euro area Ministers unanimously agreed today to activate stability support to Greece via bilateral loans centrally pooled by the European Commission under the conditions set out in their statement of 11 April. Parliamentary approval, needed in some Member States prior to the release of the first tranche, is expected to follow swiftly.

With regard to the formal decisions, the Euro Group had this to say:

The main elements of policy conditionality, as endorsed today, will be enshrined in a Council Decision under Articles 126 and 136 TFEU to be formally adopted in the coming days and further detailed in a Memorandum of Understanding, to be concluded between the Greek authorities and the Commission on behalf of euro area Member States.

The eurozone and the IMF had practically brought the Greek rescue package to a conclusion, preventing default on 19 May, and expressed their confidence in the measures adopted by the government of Greece, but later events showed that significant market operators were less optimistic and that negative sentiments were spreading towards the euro currency as a whole, and especially Spain and Portugal.




Ralf Grahn

Tracking eurozone crisis measures: Hopeful informality

According to the agenda of the Spanish presidency of the Council of the European Union, the informal Euro Group and an informal meeting of finance ministers of all EU countries (ECOFIN) together with the governors of the central banks took place in Madrid 16 to 17 April 2010.



After the informal ECOFIN Council the Spanish minister of economy Elena Salgado remarked that the ministers had reached consensus on almost everything, citing the stability and convergence programmes as an example. This would make formal conclusions possible shortly.

Fiscal consolidation had started and economic growth is gaining pace in almost all countries. Commissioner Olli Rehn was working on proposals for better economic policy coordination and supervision. National budgetary frameworks had been discussed, said Salgado (16 April 2010).



At the press conference on 17 April 2010, commissioner Olli Rehn welcomed the positive reception of ideas to strengthen economic peer review. Concrete proposals would be forthcoming on 12 May 2010.


The outward appearances, at least, were hopeful.




Ralf Grahn

Tracking eurozone crisis measures: Greek aid from words towards deeds

On Sunday, 11 April 2010 the finance ministers of the Euro Group held a teleconference, where they agreed to prepare the activation of support, jointly with the IMF, for Greece. Support by the eurozone countries during the first year of the three year package was set at €30 billion, in the form of conditional, interest-bearing loans.



The Euro Group statement adds some details to the principles presented 25 March 2010: Tracking eurozone crisis measures: Collective defence doctrine and foundations (24 May 2010).


Euro Group statement



Statement on the support to Greece by Euro area Members States; Brussels, 11 April 2010

Following the statement by the Heads of State and Government of the Euro area on 25 March, Euro area Members States have agreed upon the terms of the financial support that will be given to Greece, when needed, to safeguard financial stability in the Euro area as a whole.

Euro area Members States are ready to provide financing via bilateral loans centrally pooled by the European Commission as part of a package including International Monetary Fund financing.

The Commission, in liaison with the ECB, will start working on Monday April 12th, with the International Monetary Fund and the Greek authorities on a joint programme (including amounts and conditionality, building on the recommendations adopted by the Ecofin Council in February). In parallel, Euro area Members States will engage the necessary steps, at national level, in order to be able to deliver a swift assistance to Greece.

Euro area Member States will decide the activation of the support when needed and disbursements will be decided by participating Member States.

The programme will cover a three-year period. The euro area Member States are ready to contribute for their part up to € 30 billion in the first year to cover financing needs in a joint programme to be designed with and cofinanced by the IMF. Financial support for the following years will be decided upon the agreement of the joint programme.

In order to set incentives for Greece to return to market financing, Euro area Members States loans will be granted on non-concessional interest rates. The pricing formula used by the IMF is an appropriate benchmark for setting Euro area Members States bilateral loan conditions, albeit with some adjustments. Variable-rate loans will be based on 3-month Euribor. Fixed-rate loans will be based upon the rates corresponding to Euribor swap rates for the relevant maturities. A charge of 300 basis points will be applied. A further 100 basis points are charged for amounts outstanding for more than 3 years. In conformity with IMF charges, a one-off service fee of maximum 50 basis points will be charged to cover operational costs.

For instance, as of April 9th, for a three year fixed-rate loan granted to Greece, the rate would be around 5%.

The Eurogroup is confident that the determined efforts of the Greek authorities and of its European Partners will allow to overcome the fiscal and structural challenges of the Greek economy. In this context, the Eurogroup welcomes the budget execution in the first months of the year, which shows that the measures taken so far are bearing fruit.

Supportive statements



The official communications on 11 April 2010 included a Commission press release MEMO/10/123, a statement by the president of the European Council Herman Van Rompuy and a short supportive statement by IMF managing director Dominique Strauss-Kahn.



In the media



EurActiv: Euro zone readies 30bn euros to rescue Greece (12 April, updated 15 April 2010)



EUbusiness: ECB’s Trichet says Greek aid plan ‘positive’ (12 April 2010)


Still government by communiqués, but the eurozone statement was a clear step towards deeds to save Greece from default and the euro area from chaos.




Ralf Grahn

Eurozone crisis: Roundup of official information (OJEU)

The eurozone tsunami hit governments of EU member states individually and as a whole, the heads of state or government of the euro area, the Euro Group, the Council of the European Union (Economic and Financial Affairs, ECOFIN), the European Commission, the European Parliament (EP), the European Central Bank (ECB) and the International Monetary Fund (IMF).

Crucial officials and politicians have certainly lived “in interesting times”.

Despite my feelings of empathy, the European Union aspires to take decisions as openly as possible and as closely as possible to the citizen. Democracy and the rule of law are among the founding values of the EU.

We have cause to take a closer look at the crisis management with regard to governance and transparency, given the magnitude of the actions.



OJEU



Eur-Lex is the legal portal of the EU, and the backbone of legal and major political information is the Official Journal of the European Union (OJEU).

OJEU is where we expect to find all relevant legal information, accessible to the EU citizens in the official languages of the European Union in a timely manner.

Let us start the roundup of OJEU information regarding the eurozone crisis.


Greek debt as collateral



DECISION OF THE EUROPEAN CENTRAL BANK of 6 May 2010 on temporary measures relating to the eligibility of marketable debt instruments issued or guaranteed by the Greek Government (ECB/2010/3) (2010/268/EU); published OJEU 11.5.2010 L 117/102.



Despite junk bond status by rating agencies, the ECB decided that the marketable debt instruments issued by the Greek Government or guaranteed by the Greek Government retain a quality standard sufficient for their continued eligibility as collateral for Eurosystem monetary policy operations, irrespective of any external credit assessment.



European financial stabilisation mechanism

In earlier blog posts we have mentioned and discussed some aspects of the following atypical act (a Council Regulation classified as a non-legislative act):



COUNCIL REGULATION (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism; published OJEU 12.5.2010 L 118/1.



Based on Article 122(2) TFEU, Council Regulation 407/2010 establishes the conditions and procedures under which Union financial assistance may be granted to a Member State which is experiencing, or is seriously threatened with, a severe economic or financial disturbance caused by exceptional occurrences beyond its control.

The preamble argues why, in the view of the Council, exceptional occurrences beyond the control of one or more member states apply.

There is no documentary reference establishing a paper trail to the Commission proposal, and the Council only has the obligation to inform the European Parliament, according to Article 122(2) TFEU.

Financial assistance under the European financial stabilisation mechanism takes the form of a loan or of a credit line granted to the member state concerned. In accordance with a Council decision, the Commission is empowered on behalf of the European Union to contract borrowings on the capital markets or with financial institutions (Article 2).

The existing precedent, at least in part, is the facility providing medium-term financial assistance for non-euro-area Member States’ balances of payments, as established by Council Regulation 332/2002:



COUNCIL REGULATION (EC) No 332/2002 of 18 February 2002 establishing a facility providing medium-term financial assistance for Member States' balances of payments; originally published OJEC 23.2.2002 L 53/1; the link is to latest consolidated version of 28 May 2009.



ECB account for loans to Greece




DECISION OF THE EUROPEAN CENTRAL BANK of 10 May 2010 concerning the management of pooled bilateral loans for the benefit of the Hellenic Republic and amending Decision ECB/2007/7 (ECB/2010/4) (2010/275/EU); published OJEU 13.5.2010 L 119/24.



The ECB Decision 2010/4 lays down provisions concerning the cash account to be opened with the ECB for the operation of the Loan Facility Agreement and the Intercreditor Agreement between Greece and the other euro area states, and it provides for an extension of the categories of persons eligible to be customers of the ECB.



Summing up

By today, 19 May 2010, we have found one major crisis decision – the European financial stabilisation mechanism – published in the Official Journal of the European Union.

The paper trail is thin, and the scope for preceding democratic debate at European and national level has been limited.

In addition, two supporting decisions by the ECB have been published.

The fact is that major parts of the monumental decisions have not been published in accordance with high standards of governance or transparency.

We can only speculate as to the causes. The preparatory work has been done and the decisions have been taken under huge pressure. Publishing the OJEU in all the official languages of the European Union is a challenging task even under normal circumstances.

There may be more in the publishing pipeline.

However, if decisions prepared for and taken ‘de facto’ by member states individually, or as parts of unofficial groups, fall outside the scope of OJEU publishing criteria, we have a serious problem affecting the core values of the European Union: openness, closeness and the rule of law.




Ralf Grahn

Euro Group leaders rescuing the euro

The latest in our series of blog posts inspired by the rescue actions in the eurozone was More on the EU’s no-bailout rule (European financial stabilisation mechanism), 14 May 2010.



The problem

In addition to the mind-boggling sums involved and the sudden calls for solidarity national leaders have done little consistent work to prepare their citizens for, the population has been bewildered by seemingly contradictory rules:

If EU bailouts are prohibited, is financial assistance allowed?

EU citizens have been taught that their country is not liable for the commitments of other member states: the so called no-bailout rule (Article 125 TFEU). On the other hand, EU financial assistance is expressly allowed in case of a serious threat of severe difficulties caused by natural disasters or exceptional occurrences beyond the control of a member state, according to Article 122(2) TFEU.

If citizens can make neither head nor tail of this, it is the responsibility of the national political leaders and the institutions of the European Union to elucidate.

This means that we have to sift through the paper trail left by the European Council, the Commission and the Council.

If the EU institutions work properly and transparently, the answers should become clear. If not, a vacuum is left to be filled by all sorts of protests, conjectures and conspiracy theories.

There is a lot to look at, so we have to advance patiently, one step at a time, without being stunned by the magnitude of the decisions. On the contrary, these monumental actions require detailed scrutiny and open discussion.



Euro Group

If we oversimplify matters crudely, we can say that the economic policy coordination specific to the second largest reserve currency in the world, the euro, depends on an informal intergovernmental arrangement.

Article 137 of the Treaty on the Functioning of the European Union (TFEU) refers to the Protocol on the Euro Group.



Protocol No 14 aims at ever closer coordination of economic policies within the euro area, and the Euro Group has a president, elected for two and a half years (Jean-Claude Juncker). Article 1 contains the substance of the arrangement (OJEU 30.3.2010 C 83/283):

Article 1

The Ministers of the Member States whose currency is the euro shall meet informally. Such meetings shall take place, when necessary, to discuss questions related to the specific responsibilities they share with regard to the single currency. The Commission shall take part in the meetings. The European Central Bank shall be invited to take part in such meetings, which shall be prepared by the representatives of the Ministers with responsibility for finance of the Member States whose currency is the euro and of the Commission.

The Ministers of Finance (although not specifically mentioned as such) meet informally to discuss. The Euro Group does not make formally binding decisions.



Eurozone leaders


However, it was an even more informal meeting of the heads of state or government of the euro area countries which set things in motion on 7 May 2010:



Statement of the heads of state or government of the euro area (press release)


Based on the principles of responsibility and solidarity, the participants expressed their political will to provide 80 billion euros (110 billion with the IMF) to Greece, in exchange for the Greek reform package, which was described as ambitious and realistic.

The leaders reaffirmed their commitment to ensure the stability, unity and integrity of the euro area, and they stated that the institutions of the euro area (Council, Commission, ECB) as well as the eurozone member states agreed to use the full range of means available to ensure stability.

The national leaders said that their countries were prepared to accelerate the consolidation of public finances. They promised strict enforcement of recommendations under the Stability and Growth Pact.

The meeting expressed support for the European Central Bank (ECB) in its action to ensure the stability of the euro area.

Taking into account the exceptional circumstances, the Commission would propose a European stabilisation mechanism to preserve financial stability in Europe, to be decided at an extraordinary ECOFIN meeting 9 May 2010.


The President of the European Council decided to accelerate the work of the Task Force, given the preparedness of the national leaders to:

- broaden and strengthen economic surveillance and policy coordination in the euro area, including by paying close attention to debt levels and competitiveness developments;

- reinforce the rules and procedures for surveillance of euro area Member States, including through a strengthening of the Stability and Growth Pact and more effective sanctions;

- create a robust framework for crisis management, respecting the principle of Member States' own budgetary responsibility.

The press release noted that the Commission would present its proposals on May 12.


Finally, the leaders agreed on the need to make rapid progress on financial markets regulation and supervision.



My impressions

The meeting was a first response to a grave crisis threatening one of the core aims of the European Union: an economic and monetary union (EMU) whose currency is the euro.

The leaders of the eurozone member states said the right things, although only words followed by deeds have the ability to convince hard-nosed or jittery markets.

The Ministers of Finance (ECOFIN) and the European Commission were left to nail down the details of a persuasive package over the weekend.




Ralf Grahn

EU: TFEU Policy coordination

The systematic approach towards competences of the European Union in the Treaty of Lisbon includes mandatory coordination of member states policies in two important areas, economic and employment policies, with an option to take coordinating initiatives in a third, social policies.

Drafting novelties for better presentation do not necessarily change the way the European Union works. A mechanical comparison between the Lisbon Treaty and the Constitution is therefore of limited value, unless we elucidate the substantial changes or lack of them, and consider what they mean in relation to the present treaties, the ones which actually are amended.

To contribute to the knowledge of all sides about the EU and its workings, regardless of the recipients’ (and the comparer’s) preconceived views, these comparisons have to be made as objectively as possible.

In addition, I allow myself both value judgments and banter, trying to make clear when I am writing in objective and when in subjective mode. (Today’s epistle is not especially representative of the latter, being almost wholly factual in tone.)

***

In the Treaty of Lisbon (ToL) the intergovernmental conference inserted a new Article 2d TFEU (OJ 17.12.2007 C 306/47):

Article 2d TFEU (ToL), to be renumbered Article 5 TFEU

1. The Member States shall coordinate their economic policies within the Union. To this end, the Council shall adopt measures, in particular broad guidelines for these policies.

Specific provisions shall apply to those Member States whose currency is the euro.

2. The Union shall take measures to ensure coordination of the employment policies of the Member States, in particular by defining guidelines for these policies.

3. The Union may take initiatives to ensure coordination of Member States' social policies.

***

Since many visitors seem to be interested in the similarities and differences between the Lisbon Treaty and the Constitution, we can track the history backwards until we reach the existing treaties, the ones actually being amended.

The Treaty establishing a Constitution for Europe contained the following Article I-15 The coordination of economic and employment policies (OJ 16.12.2004 C 310/17):

Article I-15
The coordination of economic and employment policies

1. The Member States shall coordinate their economic policies within the Union. To this end, the Council of Ministers shall adopt measures, in particular broad guidelines for these policies.

Specific provisions shall apply to those Member States whose currency is the euro.

2. The Union shall take measures to ensure coordination of the employment policies of the Member States, in particular by defining guidelines for these policies.

3. The Union may take initiatives to ensure coordination of Member States' social policies.

***

We can conclude that the Lisbon Treaty has taken over this Article of the Constitutional Treaty unchanged.

The following stop is the European Convention and its draft Treaty establishing a Constitution for Europe, where the corresponding provision is Article I-14 (OJ 18.7.2003 C 169/11):

Article 14
The coordination of economic and employment policies

1. The Union shall adopt measures to ensure coordination of the economic policies of the Member States, in particular by adopting broad guidelines for these policies. The Member States shall coordinate their economic policies within the Union.

2. Specific provisions shall apply to those Member States which have adopted the euro.

3. The Union shall adopt measures to ensure coordination of the employment policies of the Member States, in particular by adopting guidelines for these policies.

4. The Union may adopt initiatives to ensure coordination of Member States' social policies.

***

Basically, the new Article was introduced by the Convention, although the IGC 2004 made some editorial changes. Paragraph 1 of each version seems to indicate some substantial shift, the Constitution being slightly more wishy-washy than its predecessor.

***

Coordination of member states’ economic policies, including the broad economic policy guidelines, is firmly based in the current TEC, where Articles 98 and 99 offers a range of activities (for the latest consolidated version of the TEU and TEC, go to OJ 29.12.2006 C 321 E/82-83):

CHAPTER 1 TEC
ECONOMIC POLICY

Article 98

Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community, as defined in Article 2, and in the context of the broad guidelines referred to in Article 99(2). The Member States and the Community shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 4.

Article 99

1. Member States shall regard their economic policies as a matter of common concern and shall coordinate them within the Council, in accordance with the provisions of Article 98.

2. The Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the Member States and of the Community, and shall report its findings to the European Council.

The European Council shall, acting on the basis of the report from the Council, discuss a conclusion on the broad guidelines of the economic policies of the Member States and of the Community.

On the basis of this conclusion, the Council shall, acting by a qualified majority, adopt a recommendation setting out these broad guidelines. The Council shall inform the European Parliament of its recommendation.

3. In order to ensure closer coordination of economic policies and sustained convergence of the economic performances of the Member States, the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the Member States and in the Community as well as the consistency of economic policies with the broad guidelines referred to in paragraph 2, and regularly carry out an overall assessment.

For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy and such other information as they deem necessary.

4. Where it is established, under the procedure referred to in paragraph 3, that the economic policies of a Member State are not consistent with the broad guidelines referred to in paragraph 2 or that they risk jeopardising the proper functioning of economic and monetary union, the Council may, acting by a qualified majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned. The Council may, acting by a qualified majority on a proposal from the Commission, decide to make its recommendations public.

The President of the Council and the Commission shall report to the European Parliament on the results of multilateral surveillance. The President of the Council may be invited to appear before the competent committee of the European Parliament if the Council has made its recommendations public.

5. The Council, acting in accordance with the procedure referred to in Article 252, may adopt detailed rules for the multilateral surveillance procedure referred to in paragraphs 3 and 4 of this Article.

***

The interested reader can find additional information in the following official documents:

Council Recommendation 2005/601/EC of 12 July 2005 on the broad economic policy guidelines of the Member States and the Community (2005 – 2008) (OJ 6.8.2005 L 205)

Council Recommendation 2007/209/EC of 27 March 2007 on the 2007 update of the broad guidelines for the economic policies of the Member States and the Community and on the implementation of Member States' employment policies (OJ 3.4.2007 L 92)

There is a convenient presentation of the Broad economic policy guidelines (2005 – 2008) available on the Commission’s Scadplus web pages:

http://europa.eu/scadplus/leg/en/lvb/l25078.htm

***
Specific provisions apply to those Member States whose currency is the euro. Monetary policy for the Eurozone is an exclusive EU competence according to the TFEU. How the members belonging to the Eurozone handle their economic policies has direct implications for the monetary policy.

We are going to encounter the detailed provisions later, but at this stage I will only draw your attention to the Protocol on the Euro Group annexed to the Lisbon Treaty, with informal meetings of the (Finance) Ministers and a President elected for two and a half years, an arrangement currently in use (OJ 17.12.2007 C 306/151):

PROTOCOL
ON THE EURO GROUP

THE HIGH CONTRACTING PARTIES,

DESIRING to promote conditions for stronger economic growth in the European Union and, to that end, to develop ever closer coordination of economic policies within the euro area,

CONSCIOUS of the need to lay down special provisions for enhanced dialogue between the Member States whose currency is the euro, pending the euro becoming the currency of all Member States of the 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 Ministers of the Member States whose currency is the euro shall meet informally. Such meetings shall take place, when necessary, to discuss questions related to the specific responsibilities they share with regard to the single currency. The Commission shall take part in the meetings. The European Central Bank shall be invited to take part in such meetings, which shall be prepared by the representatives of the Ministers with responsibility for finance of the Member States whose currency is the euro and of the Commission.

Article 2
The Ministers of the Member States whose currency is the euro shall elect a president for two and a half years, by a majority of those Member States.

***

After living a life on their own, the employment policy guidelines have been integrated with the Broad Economic Policy Guidelines. For a introduction you could visit the Scadplus web pages of the Commission, Employment policy guidelines (2005 – 2008):

http://europa.eu/scadplus/leg/en/cha/c11323.htm

***

Whereas economic policy and employment policy coordination are mandatory, the coordination of member states’ social policies is an option.

For an overview of DG Employment, Social Affairs and Equal Opportunities, you could start from the DG’s homepage:

http://ec.europa.eu/employment_social/index_en.html

***

I hope that this presentation has supported, coordinated or supplemented your knowledge of EU competences. Anyway, these are the competences we are going to look at next time.


Ralf Grahn