EU Task Force on crisis resolution and budgetary discipline

The first meeting of the Task Force established by the March 2010 European Council on improved crisis resolution and better budgetary discipline will be held in Brussels on today, Friday 21 May 2010.

The Task Force is chaired by Herman Van Rompuy, President of the European Council.

Representatives of the members states, the rotating presidency and the European Central Bank will meet for the first time to start work with a view to presenting a report to the October European Council on the measures needed to reach the objectives of an improved crisis resolution framework and better budgetary discipline, says the press release from the President of the European Council.



European Council March 2010



We recall the conclusions of the European Council 25/26 March 2010 (document EUCO 7/10), where the heads of state or government mercifully acknowledged “in cooperation with the Commission” with regard to the establishment:

7. The European Council asks the President of the European Council to establish, in cooperation with the Commission, a task force with representatives of the Member States, the rotating presidency and the ECB, to present to the Council, before the end of this year, the measures needed to reach the objective of an improved crisis resolution framework and better budgetary discipline, exploring all options to reinforce the legal framework.

In the news


If official communication from the European Council has been meagre, individual leaders and politicians have launched various ideas and actions, probably adding more confusion than clarity at this stage.

Here is a brief roundup of European news sources ahead of the task force meeting.




EUobserver, Andrew Rettman: EU holds first meeting on joint economic governance (21 May 2010). The article discusses the proposals tabled by the Commission on 12 May and especially issues proposed by the German finance minister Wolfgang Schäuble.



EurActiv: Paris, Berlin struggle for unity ahead of EU meeting (21 May 2010) tells us how Germany’s Angela Merkel and France’s Nicolas Sarkozy are trying to iron out differences after the uncertainty generated by unilateral moves and ideas. Sanctions, potential French budget discipline, concerns over the euro and the Commission proposal on improving economic governance are outlined.




EUbusiness: France, Germany agree to cooperate on euro proposals (20 May 2010) says that Merkel and Sarkozy will coordinate closely at the Friday meeting chaired by Van Rompuy and prepare jointly ahead of the European Council 17 June and the G20 meeting at the end of June.




European Voice, Simon Taylor: Germany to push for nine financial reforms (21 May 2010) expected German finance minister Wolfgang Schäuble to present a nine-point plan to the Van Rompuy task force and outlined main points.




The Financial Times, Quentin Peel: Berlin pushes for global financial curbs (20 May 2010) records that chancellor Merkel will win a majority for Germany’s part of the euro stabilisation package, but fail to gain cross-party support. The article presents some proposals and positions.




Ralf Grahn

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:

http://www.borsaitaliana.reuters.it/news/newsArticle.aspx?type=businessNews&storyID=2008-10-03T092502Z_01_MIE4920AQ_RTROPTT_0_OITBS-CRISI-PADOASCHIOPPA-FONDO.XML

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".

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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.

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


Ralf Grahn

EU: Excessive government deficits Ib

Carrot and stick: Economic policy coordination is the persuasive part of economic union, and the procedures concerning excessive government deficits represent the dissuasive arm.
We look at the existing EC (EU) treaty rules concerning excessive government deficits.

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It takes some time to wade through all fourteen paragraphs of Article 104 of the Treaty Establishing the European Community (TEC). Cf. OJ 29.12.2006 C 321 E/84─86:

Part Three – Community policies

Title VII – Economic and monetary policy

Chapter 1 – Economic policy

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 this Treaty.

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 Committee provided for in Article 114 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, the Commission shall address an opinion to the Council.

6. The Council shall, acting by a qualified majority on a recommendation 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 existence of an excessive deficit is decided according to paragraph 6, the Council shall make recommendations 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 226 and 227 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 Community 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 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 referred to in paragraphs 7 to 9, 11 and 12, the Council shall act on a recommendation from the Commission by a majority of two thirds of the votes of its members weighted in accordance with Article 205(2), excluding the votes of the representative of the Member State concerned.

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 this Treaty.

The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the ECB, adopt the appropriate provisions which shall then replace the said Protocol.

Subject to the other provisions of this paragraph, the Council shall, before 1 January 1994, acting by a qualified majority 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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The next post is going to look at other current treaty level provisions concerning excessive government deficits.


Ralf Grahn