Monday 6 October 2008

EU: Excessive government deficits Id

The Eurogroup, the EU finance ministers (ECOFIN) and the EU heads of state or government (European Council) are going to convene in the wake of the Elysée summit of the European G8 members.

We already saw that there is not going to be one European response, but an effort to coordinate national ones. We also heard about the new flexibility concerning budgetary discipline (and state aid).

Before the summit, Tommaso Padoa-Schioppa had called for a European fund to support banks. In the 3 October 2008 Reuters interview, the former European Central Bank board member and the recent minister of finance of Italy saw the need for public capital at the European or Eurozone level, because the national level leads to conflicts:

Padoa-Schioppa also mentioned that the rules of the Stability Pact can be suspended in an emergency:

"In una situazione di aperta crisi sarebbe molto più pericoloso per qualunque tipo di stabilità, compresa quella di bilancio, non agire nel modo opportuno per risolvere la crisi che assumere azioni straordinarie".


Suspending budget discipline?

Extraordinary times call for extraordinary measures, but how much can the EU system of budgetary discipline be eviscerated legally?

We already saw that the Commission examines compliance with budgetary discipline on the basis of the reference value of 3 % of gross domestic product.

The treaty level escape clause is Article 104(2)(a) of the Treaty establishing the European Community (TEC), where “alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value”.

If the process advances, the Commission addresses an opinion to the Council, but the Council decides “after an overall assessment” if an excessive deficit exists, and the Council makes recommendations to the member state concerned with a view to bringing the situation to an end within a given period. Cf. Article 104(5) ─ (7) TEC.


In the next posts, we are going to take a closer look at secondary legislation and rules for interpretation.

Ralf Grahn

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