EMU convergence programme Czech Republic

On 26 April 2010 the Council examined the updated convergence programme of the Czech Republic, which covers the period 2009 to 2012:



COUNCIL OPINION on the updated convergence programme of the Czech Republic, 2009-2012; published OJEU 28.5.2010 C 138/1.


In the wake of the financial and economic crisis, this is how the Council introduced the state of the Czech public economy:

The global crisis had a strong impact on the Czech economy. Following a three-year period of growth above 6 %, real GDP grew by only 2.5 % in 2008 and declined by 4 % in 2009, according to the updated convergence programme. The economy was mainly affected through the trade channel, but also through confidence effects, a tightening of credit conditions, and shrinking foreign investment inflows. The authorities reacted determinedly to the crisis.

The Czech National Bank reduced its key policy interest rate from 3.75 % in mid-2008 to 1 % currently, and the government designed and implemented a sizeable fiscal stimulus package in line with the European Economic Recovery Plan (EERP), amounting to 2,2 % of GDP in 2009. The Czech koruna depreciated by about one fifth against the euro between mid-July 2008 and mid-February 2009 (it then appreciated by some 14 % by mid-February 2010). In the current immediate post-crisis period, the Czech economy does not suffer from important macroeconomic vulnerabilities. The main challenge is to reduce the high structural government deficit, estimated at around 6 % of GDP in 2009, to a sustainable level. Furthermore, it is also important to ensure a rapid adjustment of the labour market to the downturn and progress towards long-lasting convergence. On 2 December 2009, in view of the planned deficit for 2009, the Council decided on the existence of an excessive deficit and issued recommendations to bring the deficit below the 3 % of GDP threshold by 2013.

After discussing various aspects and assumptions, with a view to sustainable convergence, the Council invited the Czech Republic to:

(i) implement the 2010 budget rigorously and avoid expenditure slippages; in line with the Council Recommendation under Article 126(7), target, in the context of the 2011 and 2012 budgets, a larger budgetary adjustment than the one planned in the programme and specify in more detail the measures that are necessary to correct the excessive deficit by 2013 at the latest;

(ii) take action to improve budgetary procedures and to enforce and monitor more rigorously the medium-term budgetary targets; in particular, avoid upward revisions of expenditure ceilings beyond the revisions permitted by the budgetary rules;

(iii) implement the necessary reforms in order to improve the long-term sustainability of public finances.

The Czech Republic is also invited to add in its next update of the convergence programme more substantial information in the separate chapter on progress made to bring the excessive deficit situation to an end, as requested by the Council in its recommendations under Article 126(7) of 2 December 2009.

Further reading

Since the date of the Council opinion on the Czech Republic, the European Central Bank (ECB) and the European Commission have published their convergence reports, which contain more detail and allow for comparison with other euro area hopefuls.



The ECB Convergence Report 2010 was published 12 May 2010. The 359 page report is available on the ECB website in 21 languages.



The Commission’s Convergence Report 2010 was published 12 May 2010 under the responsibility of the Directorate-General for Economic and Financial Affairs (226 pages).


The 2010 convergence reports examine nine countries, committed by the treaty to adopt the euro: Bulgaria, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania and Sweden.




Ralf Grahn

EMU: Publishing decisions on excessive deficits

Due to the eurozone crisis, we have checked how little of the decisions and positions have been reflected centrally on Eur-Lex, the legal portal: in the Official Journal of the European Union (OJEU) or under preparatory acts (COM and SEC documents). There are considerable gaps.

Transparency is more than eventual publication for historians.

The publication today, 21 May 2010, of a number of Council Decisions within the larger context of budgetary discipline is naturally a positive addition, but timely publication would be even better.

The ten decisions were all made on 19 January 2010, so they put into question the usefulness of the OJEU as a source for up-to-date legal information.

See OJEU 21.5.2010 L 125.



Excessive deficits

According to the Treaty on the Functioning of the European Union (TFEU):

Article 126(6) TFEU

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

On 19 January 2010 the Council concluded that excessive deficits existed in Austria, Belgium, the Czech Republic, Germany, Italy, the Netherlands, Portugal, Slovenia and Slovakia.





COUNCIL DECISION 2010/282/EU of 19 January 2010 on the existence of an excessive deficit in Austria





COUNCIL DECISION 2010/283/EU of 19 January 2010 on the existence of an excessive deficit in Belgium






COUNCIL DECISION 2010/284/EU of 19 January 2010 on the existence of an excessive deficit in the Czech Republic





COUNCIL DECISION 2010/285/EU of 19 January 2010 on the existence of an excessive deficit in Germany





COUNCIL DECISION 2010/288/EU of 19 January 2010 on the existence of an excessive deficit in Portugal





COUNCIL DECISION 2010/289/EU of 19 January 2010 on the existence of an excessive deficit in Slovenia





COUNCIL DECISION 2010/290/EU of 19 January 2010 on the existence of an excessive deficit in Slovakia



Excessive deficit procedure (EDP) Greece

According to the treaty, the next steps in the excessive deficit procedure are:

Article 126(7)-(9) TFEU

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

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

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

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

In the case of Greece, the Council concluded that it has not taken effective action in response to the Council Recommendation of 27 April 2009 within the period laid down in that Recommendation.




COUNCIL DECISION 2010/291/EU of 19 January 2010 establishing whether effective action has been taken by Greece in response to the Council Recommendation of 27 April 2009



Comment

The financial, economic and sovereign debt crises have left questions with regard to the publishing parameters and the timeliness of publication of official information on Eur-Lex.




Ralf Grahn

European Union: Excessive deficit procedure

Even if the European Union has a single currency, the euro, economic policy is mainly in the hands of national governments, although with EU level coordination and common rules on sound public finances.

Article 104 of the Treaty establishing the European Community (TEC) lays down rules on the avoidance of excessive government deficits. It is complemented by the Protocol on the excessive deficit procedure, annexed to the treaty.

In addition, there is Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community, which has been substantially amended several times.

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New Regulation

In the interests of clarity and rationality Regulation 3605/93 has now been replaced by a codified Regulation:

Council Regulation (EC) No 479/2009 of 25 May 2009 on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community (Codified version), published in the Official Journal of the European Union (OJEU) 10.6.2009 L 145/1.



The new and codified Regulation 479/2009 is the reference for those who want to look into the finer details of the procedure. Given the economic climate and the development of government finances, there will be more than a few to find an interest.


Ralf Grahn

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

EU: Excessive government deficits VI

The previous post mentioned a few UK references to Article 126 of the Treaty on the Functioning of the European Union (TFEU). We now turn to legal materials from Sweden and Finland as well as some EU commentaries in book form, to see if excessive government deficits within the economic union have elicited comments.

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Lissabonfördraget (Sweden)

The consultation paper ’Lissabonfördraget’ was the first official Swedish description of the Lisbon Treaty amendments, and it is available at:

http://www.regeringen.se/content/1/c6/09/49/81/107aa077.pdf

It was followed by the Swedish government’s draft ratification bill ‘Lagrådsremiss – Lissabonfördraget’, published 29 May 2008:

http://www.regeringen.se/sb/d/5676/a/106277

The draft bill was given a green light by the Council on Legislation (Lagrådet):

http://www.lagradet.se/yttranden/Lissabonfordraget.pdf

The latest official government view, and now my standard reference for Sweden, is the ratification bill, with the Swedish parliament (Riksdagen) expected to decide on approval in late autumn, in November or even later in the year. Committee work has not even started. The ratification bill, Regeringens proposition 2007/08:168 Lissabonfördraget; 3 July 2008, is available at:

http://www.regeringen.se/content/1/c6/10/84/02/8c96cf3e.pdf

Economic and monetary policy (23.2 Ekonomisk och monetary politik) is discussed on pages 180 to 185. The Swedish government presents a fairly detailed description of the current and proposed provisions concerning Article 104 TFEU (ToL). The Commission’s powers in paragraphs 5 and 6 are explained, and joint Declaration No. 30 is mentioned. The government welcomes the proposals to strengthen implementation and monitoring of economic policy (page 182):

”Lissabonfördraget innebär inte, enligt regeringens mening, några genomgripande förändringar i regelverket eller i fördelningen av befogenheter på det ekonomisk-politiska området. Antagandet av de allmänna riktlinjerna ska fortfarande ske på samma sätt som tidigare, med den skillnaden att endast euroländerna får rösta om de rekommendationer som riktar sig till dessa länder (artikel 115a i EUF-fördraget).

En viss förskjutning görs dock i riktning mot mer inflytande för kommissionen. Bestämmelserna syftar till att säkerställa genomförandet av medlemsstaternas åtaganden. Kommissionen ska till exempel få möjlighet att självständigt utfärda en varning till en medlemsstat som inte bedöms efterleva de allmänna riktlinjerna för den ekonomiska politiken. Rådet kommer dock, på samma sätt som i dag, med kvalificerad majoritet och på rekommendation av kommissionen, kunna besluta om att lämna den berörda medlemsstaten de rekommendationer som behövs. Skillnaden gentemot nuvarande bestämmelser är att den berörda medlemsstaten inte får delta i detta beslut (artikel 99 i EUF-fördraget).

Om kommissionen anser att det föreligger eller kan uppstå ett alltför stort underskott i en medlemsstat, lämnar kommissionen idag ett yttrande till rådet. Enligt Lissabonfördraget kommer kommissionen i stället att lämna ett yttrande till den medlemsstaten och informera rådet om detta (artikel 104.5 i EUF-fördraget).

Om kommissionen bedömer att en medlemsstat har ett alltför stort underskott lämnar kommissionen idag en rekommendation till rådet att slå fast detta. Enligt Lissabonfördraget kommer kommissionen i stället att lämna ett förslag i denna fråga (artikel 104.6 i EUF-fördraget). Denna skillnad innebär att rådet, för att ändra innehållet i förslaget från kommissionen, måste uppnå enhällighet om ändringsförslaget. Vid en rekommendation från kommissionen, såsom fallet är i dag, har rådet möjlighet att ändra texten med kvalificerad majoritet.

I en gemensam förklaring (30) till artikel 104 i fördraget om Europeiska unionens funktionssätt bekräftar regeringskonferensen bl.a. att stabilitets- och tillväxtpakten är ett viktigt instrument för att uppnå en ökning av tillväxtpotentialen och ett säkerställande av sunda offentliga finanser.

Instrumenten för genomförande och uppföljning av den ekonomiska politiken behöver stärkas. Det är därför positivt att fördraget innehåller bestämmelser som syftar till detta.”

The new decision-making procedures concerning economic policy are mentioned on page 185, namely the new definition of a qualified majority:

”I ett flertal fall på området ekonomisk och monetär politik ska rådet fatta beslut med kvalificerad majoritet enligt den nya definition av detta begrepp som införs genom Lissabonfördraget (se även avsnitt 14.4). Det rör sig bl.a. om rådsbeslut om rekommendationer till en medlemsstat som för en politik som inte är förenlig med de allmänna riktlinjerna eller har ett alltför stort underskott (artiklarna 99.4 104.6 och 104.7 i EUF-fördraget), rådsbeslut om antagande av landsspecifika riktlinjer (artikel 115a.1b i EUF-fördraget), rådsbeslut om åtgärder för att säkerställa ett enat externt handlande (artikel 115c.2 i EUF-fördraget) och olika rådsbeslut som rör de s.k. medlemsstaterna med undantag (artiklarna 116a.4 och 117a.2 i EUF-fördraget). Särskilda övergångsbestämmelser när det gäller omröstning i rådet enligt artikel 205.3 i EUF-fördraget finns i artikel 3.4 i ett protokoll om övergångsbestämmelser som fogas till EU-fördraget, EUF-fördraget och Euratomfördraget ”

These excerpts illustrate ─ especially when compared with their UK counterparts ─ why detailed Swedish government bills are valuable sources on new legislation for students as well as practitioners, even beyond the publication of textbooks incorporating the amendments.

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Lissabonin sopimus (Finland)

Nowadays, Finnish government proposals increasingly reflect the Swedish tradition of detailed government bills.

The Finnish ratification bill, ‘Hallituksen esitys Eduskunnalle Euroopan unionista tehdyn sopimuksen ja Euroopan yhteisön perustamissopimuksen muuttamisesta tehdyn Lissabonin sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 23/2008 vp), presents an overview of economic and monetary policy (Talous- ja rahapolitiikka) on pages 91 to 92. The corresponding amendments are later described, Article by Article, on pages 209 to 214.

The ratification bill makes the evaluation that the amendments to Article 104 TFEU (ToL), renumbered Article 126 TFEU, make no real difference to the application of the procedures concerning excessive deficits in Article 104 TEC. The new Council procedures in paragraphs 6 and 7 are described (page 210):

”104 artikla (uusi 126 artikla), joka velvoittaa jäsenvaltioita välttämään julkisen talouden liiallisia alijäämiä, vastaa SEY 104 artiklaa. Artiklaan tehdyillä muutoksilla ei ole käytännön merkitystä liiallisen alijäämän menettelyn soveltamiselle.

Artiklan 6 ja 7 kohdassa on määräyksiä neuvoston menettelystä, kun se päättää liiallisen alijäämän olemassaolosta sekä siihen liittyvistä seuraamuksista. Määräykset päätöksentekomenettelystä näissä asioissa ovat uusia. Kun neuvosto päättää liiallisen alijäämän olemassaolosta, asiassa osallisena olevan jäsenvaltion edustaja saa osallistua keskusteluun, mutta hänellä ei ole äänioikeutta.”

A description of Declaration No. 30 (30. Julistus Euroopan unionin toiminnasta tehdyn sopimuksen 104 artiklasta) is given on page 313.

The Finnish ratification bill is available at:

http://www.finlex.fi/fi/esitykset/he/2008/20080023.pdf


The Swedish language version of the ratification bill ‘Regeringens proposition till Riksdagen med förslag om godkännande av Lissabonfördraget om ändring av fördraget om Europeiska unionen och fördraget om upprättandet av Europeiska gemenskapen och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen’ (RP 23/2008 rd), offers the same general remarks on economic and monetary policy on pages 93 to 94. The detailed remarks, Article by Article, under ’Ekonomisk och monetär politik’ contain the same description of Article 104 TFEU (ToL), the future Article 126 TFEU as in Finnish, on page 213:

”Artikel 104 (blivande artikel 126), som ålägger medlemsstaterna att undvika alltför stora underskott i den offentliga sektorns finanser, motsvarar artikel 104 i EGfördraget. De ändringar som gjorts i artikeln har ingen praktisk betydelse för tillämpningen av förfarandet för alltför stora underskott.

Artikel 104.6 och 104.7 innehåller bestämmelser om rådets förfarande när det avgör om underskottet är alltför stort samt om påföljderna därav. Bestämmelserna om beslutsförfarandet i dessa frågor är nya. När rådet avgör om underskottet är alltför stort får företrädaren för den berörda medlemsstaten delta i diskussionen, men saknar rösträtt.”

The description of Declaration No. 30 (30. Förklaring till artikel 104 i fördraget om Europeiska unionens funktionssätt) is on page 316.

The ratification bill in Swedish can be accessed at:

http://www.finlex.fi/sv/esitykset/he/2008/20080023.pdf

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de Poncins

Étienne de Poncins offers a few general comments on EU economic governance and budget matters, ‘La gouvernance économique et les questions budgétaires’ in his ‘Le traité de Lisbonne en 27 clés’ (Éditions Lignes de Repères, 2008), pages 245─251, but nothing specific on Article 126 TFEU.


Fischer

‚Der Vertrag von Lissabon‘, by Klemens H. Fischer (Nomos, Stämpfli & Verlag Österreich, 2008), traces the amendments Article by Article; here on pages 266─269. His remarks on the amendments are fairly detailed.


Priollaud and Siritzky

François-Xavier Priollaud and David Siritzky offer a short introductory explanation on economic and monetary policy (pages 246 and 247). They succinctly present economic policy coordination, including the relevant treaty amendments on excessive government deficits (pages 248 to 250) in their book ‘Le traité de Lisbonne – Commentaire, article par article, des nouveaux traités européens (TUE et TFUE)’ (La Documentation française, Paris, 2008).

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Consultation procedure

The intergovernmental character of EU economic policy coordination is striking. In Article 126 TFEU, the European Parliament is marginalized, either informed or consulted.

Just in case someone wants to reflect on the consultation procedure (and other decision-making procedures), Martin Gellermann offers a description in Rudolf Streinz (Hrsgb.): EUV/EGV Vertrag über die Europäische Union und Vertrag zur Gründung der Europäischen Gemeinschaft (C.H.Beck, 2003). I quote the beginning of Konsultations- oder Anhörungsverfahren (page 2204):

„Als Ursprungsmodell für eine Beteiligung des Europäischen Parlaments am Prozess der gemeinschaftlichen Rechtsetzung erscheint das Konsultations- oder Anhörungsverfahren in dem der Kommission das Initiativrecht, dem Parlament eine Beratungsbefugnis und dem Rat das alleinige Entscheidungsrecht gebührt.“

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The next post is going to present the relevant Annexes to the Lisbon Treaty.

Ralf Grahn

EU: Excessive government deficits V

What, if anything, has been said about the amendments in Article 126 of the Treaty on the Functioning of the European Union (TFEU) with regard to excessive government deficits? Let us look at some legal materials.

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Statewatch

Professor Steve Peers covered the Treaty of Lisbon in a number of Statewatch Analyses. ‘EU Reform Treaty Analysis no. 3.4: Revised text of Part Three, Titles VII to XVII of the Treaty establishing the European Community (TEC): Other internal EC policies’ (Version 2, 24 October 2007) includes the current Title VII Economic and monetary policy.

Peers presented the text of Article 104 TFEU (ToL), to be renumbered Article 126 TFEU in the consolidated version, and highlighted the changes. He offered the following comment (page 10):

“The Commission has enhanced power to give warnings and to make a proposal instead of a recommendation in one case (this makes it harder for the Council to change the Commission’s proposal).”

The analysis 3.4 and other useful Statewatch analyses are available through:

http://www.statewatch.org/euconstitution.htm


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FCO

The Foreign and Commonwealth Office (FCO) offers a convenient source of brief annotations on Lisbon Treaty amendments in ‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon’ (Command Paper 7311, published 21 January 2008). It offers the following comment on Article 126 TFEU, Article 104 TFEU (ToL) in the original Lisbon Treaty (page 12):

“Draws on Article 104 TEC. Main new elements in the excessive deficit procedure are
─ the Commission opinion is to be issued to the Member State concerned and the Council is to be informed
─ paragraph 13 change to majority required for decision-making.”

The FCO comparative table is available at:

http://www.official-documents.gov.uk/document/cm73/7311/7311.asp

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House of Commons Library

The UK House of Commons Library Research Paper 07/86 ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Community’ (published 6 December 2007) discussed ‘H. Economic and Monetary Policy’ on pages 61 to 64. Article 104 TFEU (ToL) is described on page 62:

“Article 104 (Constitution Article III-184) covers excessive deficits. As in the Constitution, Article 104(5) (III-184(5)) has been changed to the effect that, if the Commission considers that an excessive deficit has occurred or may occur, it can address an opinion directly to the Member State concerned and inform the Council. Previously, the Commission would address this opinion to the Council. Article 104(7) (Constitution Article III-184(6)) adds that when an excessive deficit is established by the Council, recommendations to correct this will be brought forward without “undue delay”. Council decisions relating to Member States will be made without the vote of the Member State concerned (sub-paragraph 13) by a qualified majority.”

The Research Paper added the following useful comment on page 64:

“While the IGC did not agree on a new Stability and Growth Pact, a Conference Declaration regarding the Pact was annexed to the Treaty (“Declaration on Article 104 of the Treaty on the Functioning of the European Union”), in which the Conference confirms that the Pact is an “important tool” in the Union’s economic and fiscal policy and “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 Library Research Paper 07/86 is available at:

http://www.parliament.uk/commons/lib/research/rp2007/rp07-086.pdf

***

House of Lords

I found nothing on Article 104 TFEU (ToL) or 126 TFEU in the House of Lords European Union Committee report ‘The Treaty of Lisbon: an impact assessment, Volume I: Report’ (HL Paper 62-I, published 13 March 2008).

The report is available at:

http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/62/62.pdf


***

The following post is going to present additional legislative materials on Article 126 TFEU.


Ralf Grahn

EU: Excessive government deficits IV

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

***

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

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

***

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

EXCESSIVE DEFICIT PROCEDURE

90) Article 104 shall be amended as follows:

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

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

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

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

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

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

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

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

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

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

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

***

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

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

***

Consolidated Lisbon Treaty

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

Part Three Union policies and internal actions

Title VIII Economic and monetary policy

Chapter 1 Economic policy

Article 126 TFEU
(ex Article 104 TEC)

1. Member States shall avoid excessive government deficits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

— to impose fines of an appropriate size.

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

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

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

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

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

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

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

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

***

Proposal from the Commission

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

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

Article 293 TFEU
(ex Article 250 TEC)

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

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

***

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


Ralf Grahn

EU: Excessive government deficits IIIb

Does the Constitutional Treaty differ from the draft Constitution with regard to excessive government deficits?

Let us see what our legal materials have to say.

***

Draft Constitution Article III-76 and Constitution Article III-184 compared

Materially, in paragraph 6, if an excessive deficit exists, the IGC dropped that the Council shall adopt, “according to the same procedures,” and added, “without undue delay, on a recommendation from the Commission,” recommendations addressed to the Member State concerned.

In other words, the Commission’s opinion (“first warning”) directly to the member state was retained (paragraph 5) as was the Commission’s proposal on whether an excessive deficit exists (paragraph 6). These two amended the current Article 104 TEC.

But the Commission’s role was downgraded to a recommendation, when the Council was to make the crucial decision on recommendations to a “sinning” member state. Thus, the intergovernmental conference (IGC 2004) repelled one ‘communitarian’ advance, leaving the intergovernmental character of the excessive deficit procedure essentially intact, despite tinkering with the earlier stages.

In the Constitution text, the second to fourth subparagraph of paragraph 6 elaborated on the qualified majority and the blocking minority.

The same elaborations were made in paragraph 7 of the Constitutional Treaty concerning later decisions.

***

The Swedish government memorandum ‘Fördraget om upprättande av en konstitution för Europa’ (Utrikesdepartemetet, Departementsserien (Ds) 2004:52, December 2004) described the signed Constitutional Treaty.

Article III-184 was discussed in the context of provisions excluding the member state concerned from voting in the Council (page 135):

”I ett antal artiklar i fördraget förutses omröstning i frågor där inte alla medlemsstater deltar. I dessa artiklar klargörs att kvalificerad majoritet skall bestämmas med ovannämnda procentsatser avseende de av medlemsländerna som ingår i sådant beslutsfattande. Det klargörs också hur stor en blockerande minoritet skall vara i detta sammanhang. Föreskrifter av detta slag finns exempelvis i artiklarna I-44.3 om fördjupade samarbeten, I-59.5 om tillfälligt upphävande av vissa rättigheter som följer av medlemskap i unionen, I-60.4 om frivilligt utträde ur unionen, III-179.4 om allmänna riktlinjer för medlemsstaternas och unionens ekonomiska politik, III-184.6 om offentliga underskott samt III-312.3 om permanenta strukturerade samarbeten.”

The Swedish government referred to the importance of the Stability and Growth Pact, as confirmed by joint Declaration (No. 17) on Article III-184 (pages 239─240):

“I en gemensam förklaring (17) till artikel III-184 bekräftar regeringskonferensen bl.a. att stabilitets- och tillväxtpakten är ett viktigt instrument för att uppnå en ökning av tillväxten och ett säkerställande av sunda offentliga finanser.”

***

On the whole, the Swedish draft ratification bill ‘Lagrådsremiss ─ Fördraget om upprättande av en konstitution för Europa’ (2 June 2005) reiterated the remarks made in the memorandum mentioned above.

***

The government of Finland laid out the Constitutional Treaty in its ratification bill ‘Hallituksen esitys Eduskunnalle Euroopan perustuslaista tehdyn sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 67/2006 vp). On page 183 the government remarked that Article III-184 is essentially the same as Article 104 TEC, except for the provisions on voting and qualified majority in paragraphs 6 and 7:

”III-184 artikla, joka velvoittaa jäsenvaltioita välttämään julkisen talouden liiallisia alijäämiä, vastaa SEY 104 artiklaa lukuun ottamatta artiklan 6 ja 7 kohdissa olevia äänestys- ja määräenemmistösäännöksiä.

Artiklan 6 ja 7 kohdissa on määräyksiä neuvoston menettelystä, kun se päättää liiallisen alijäämän olemassaolosta sekä siihen liittyvistä seuraamuksista. Määräykset päätöksentekomenettelystä näissä asioissa ovat uusia. Kun neuvosto päättää liiallisen alijäämän olemassaolosta, asiassa osallisena olevan jäsenvaltion edustaja saa osallistua keskusteluun, mutta hänellä ei ole äänioikeutta. Päätöksenteossa sovelletaan III-179 artiklan yhteydessä selostettua määräenemmistön määritelmää.”

***

The same remarks appear in Swedish in ’Regeringens proposition till Riksdagen med förslag om godkännande av Fördraget om upprättande av en konstitution för Europa och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen (RP 67/2006 rd), page 187:

”Artikel III-184, som ålägger medlemsstaterna att undvika alltför stora underskott i den offentliga sektorns finanser, motsvarar artikel 104 i EG-fördraget med undantag för bestämmelserna om omröstning och kvalificerad majoritet i artikel III-184.6 och III-184.7.

Artikel III-184.6 och III-184.7 innehåller bestämmelser om rådets förfarande när det avgör om underskottet är alltför stort samt om påföljderna därav. Bestämmelserna om beslutsförfarandet i dessa frågor är nya. När rådet avgör om underskottet är alltför stort får företrädaren för den berörda medlemsstaten delta i diskussionen, men han saknar rösträtt. Vid beslutsfattandet tillämpas den definition av kvalificerad majoritet som förklaras i samband med artikel III-179.”

***

Klemens H. Fischer in ‘Der Europäische Verfassungsvertrag‘ (Nomos, Stämpfli & Manz, 2005), included the text of Declaration No. 17 on Article III-184. He first made the observations that „Artikel III-184 EUVV korrespondiert mit Artikel 104 EGV“ and „Artikel III-184 EUVV korrespondiert mit Artikel III-76 VVE“ (page 315).

He then added an interesting paragraph on the dealings during the intergovernmental conference:

„Das Verfahren bei übermäßigem Defizit sollte während der gesamten Regierungskonferenz ─ neben dem institutionellen Paket ─ einen der Brennpunkte darstellen; nicht zuletzt durch die prekäre Haushaltssituation in Deutschland, aber auch in Frankreich. Diesen beiden Staaten gelang es jedoch nicht, die Kernbereiche dieses Verfahrens aufzuweichen, da sich einige Nettozahlerstaaten, allen voran die Niederlande und Österreich, vehement dagegen zur Wehr setzten. Die von der Regierungskonferenz angenommene Erklärung No. 17 zeugt aber dennoch von der immanenten Gefahr der Aufweichung des Stabilitäts- und Wachstumspaktes, dessen hervorragende Bedeutung in der Erklärung erneut betont wird; eine Garantie für die strikte Beibehaltung des Paktes ist diese Erklärung aber sicherlich nicht.“

***

The UK Foreign and Commonwealth Office (FCO) ‘White Paper on the Treaty establishing a Constitution for Europe’ (Cm 6309, September 2004) remarked generally on government achievements during the IGC 2004 concerning economic governance (page 29):

“58. The Government secured changes during the IGC to make it clear that Member States remain responsible for determining and co-ordinating their economic policies. Ministers within the ECOFIN Council will continue to have the greatest and final say in setting out broad economic policy guidelines as a framework for co-ordination. A provision giving the Commission power to propose economic policies for Member States with an excessive deficit has been dropped.”

***

The next instalment turns to the IGC 2007 and the Lisbon Treaty.



Ralf Grahn

EU: Excessive government deficits IIb

We look at some legal materials and descriptions of the proposal of the European Convention in the draft Constitution concerning the avoidance of excessive government deficits and the related procedures.

***

Texts compared

Here are the material differences between Article III-76 of the draft Constitution and the existing Article 104 of the Treaty establishing the European Community (TEC):

In paragraph 5, the Commission addresses an opinion (“first warning”) directly to the member state concerned (instead of to the Council).

In paragraph 6, the Council acts on a proposal from the Commission (instead of a recommendation). Consequently, the Council would have to act unanimously to amend the proposal, which would have given it “backbone”. The text added “overall assessment” and incorporated the text of the current paragraph 7, thus dealing with both the existence of an excessive deficit and the recommendations issued as a consequence. The second subparagraph defined the qualified majority, excluding the “sinner”.

In the new paragraph 7, the Council was to make its later decisions concerning a “persistent sinner” on a recommendation from the Commission, in other words preserving the Council’s opportunities to deviate from the Commission’s view.

The current paragraph 10 on inadmissibility of actions was removed to become paragraph 12; consequently the current paragraph 11 was renumbered 10 and paragraph 12 became paragraph 11.

Decision-making on Commission recommendations had been set out in the draft Constitution (above), so the current paragraph 14 became paragraph 13.

The date for the first detailed rules and definitions (1 January 1994) was dropped. The European Parliament was still only to be consulted concerning implementing rules (subparagraph 3).

Thus, there was no paragraph 14 in the draft Constitution.

***

Convention Working Group

For a look at the background, you can read the Final report of Working Group VI on Economic Governance, CONV 357/02 (21 October 2002. Here are some relevant remarks (page 5):

“The Working Group is of the opinion that budgetary and financial coordination of the Member States with the objective of monetary stability as a basis for sound economic growth is of utmost common concern.

Therefore, as far as the Treaty provisions on excessive deficit procedures (Article 104) are concerned, a majority of the Group wish to see these amended in order to allow the Commission to issue first warnings on excessive deficits directly to the Member State concerned. Some members consider that, in the subsequent phases, the Council should take decisions by QMV on the basis of a Commission proposal, always excluding from voting the Member State concerned.”

The Working Group Report is available at:

http://register.consilium.eu.int/pdf/en/02/cv00/00357en2.pdf

***

de Poncins

Étienne de Poncins presented the proposed text of Article III-76 of the draft Constitution in ‘Vers une Constitution européenne’ (Éditions 10/18, 2003), with a lengthy and illuminating comment on page 300:

« Commentaire : cet article III-76 sur la procédure des déficits excessifs est essentiel. Il peut conduire à l’instauration des sanctions à l’égard de l’État membre qui ne se conformerait pas à une décision l’enjoignant de réduire son déficit public. Pour la mise en œuvre de cet article, tous les États membres prennent part à la décision, qu’ils soient ou non membres de la zone euro, à l’exception des décisions prises sous les paragraphes 9 et 10 (mise en demeure et éventuelles sanctions financières) pour lesquels, en vertu de l’article III-91, seuls les États membres de la zone euro prennent part au vote, en présence des autres.

Les ministres de la zone euro ont demandé que cette liste soit étendue aux paragraphes 6, 7, 8 et 11 afin que les États membres de la zone euro puissent se prononcer seuls sur ensemble de la procédure. Ils n’ont pas eu gain de cause. Une disposition particulière leur a été proposée en échange avec l’insertion d’un nouvel article III-88 propre à la zone euro. Le débat devrait reprendre lors de la Conference intergouvernementale afin notamment de clarifier l’articulation entre le nouvel article III-88 et les dispositions générales de cet article III-76.

À noter également que, conformément aux conclusions du groupe de travail sur la gouvernance économique et à l’orientation prise par la Convention, les pouvoirs de la Commission sont renforcés au paragraphe 6. À l’heure actuelle, le Conseil se prononce sur la base d’une recommandation de la Commission (qu’il peut modifier à la majorité qualifiée) pour constater un déficit excessif. La Convention propose qu’il statue à l’avenir sur la base d’une proposition de la Commission. Elle ne pourrait donc être modifiée qu’à l’unanimité des États membres. Pour la mise en œuvre d’éventuelles sanctions, le Conseil continuera à se prononcer sur base d’une recommandation. »

***

Sweden

The government of Sweden presented the main proposals on economic governance in the draft Constitution in ‘Europeiska konventet om EU:s framtid’ (Utrikesdepartementet, Departementsserien (Ds) 2003:58, 2003). The relevant passage is on page 55:

“Konventets förslag

Inom den ekonomiska politiken föreslås att kommissionen bl.a. skall få möjlighet att utfärda varningar till medlemsstater som inte bedöms följa de allmänna riktlinjer som rådet enats om rörande varje medlemsstats offentliga finanser. Konventet föreslår också att den berörda medlemsstatens röst inte skall räknas vid beslut om att utfärda en rekommendation när en medlemsstat inte efterlever de allmänna riktlinjerna eller vid beslut huruvida en medlemsstat har ett alltför stort underskott i de offentliga finanserna.”


In other words, the Swedish government mentioned the proposal to allow the Commission to issue warnings and the exclusion of the member state concerned from votes on recommendations or assessments of excessive deficits.

***

Sweden

Ahead of the intergovernmental conference (IGC 2003─2004), the government of Sweden described the proposed economic policy provisions, in ‘Europeiska konventet om EU:s framtid’ (Regeringens skrivelse 2003/04:13, den 2 oktober 2003), on pages 48:

”Kompetensfördelningen mellan institutionerna

Konventet föreslår inte några genomgripande förändringar i regelverket eller kompetensfördelningen på det ekonomisk-politiska området. En viss förskjutning föreslås i riktning mot mer inflytande för kommissionen och Europaparlamentet. Flera av dessa förslag syftar till att säkerställa genomförandet av medlemsstaternas åtaganden.

Kommissionen skall till exempel få möjlighet att utfärda ”de första varningarna” till medlemsstater som inte bedöms efterleva de allmänna riktlinjerna för den ekonomiska politiken och till medlemsstater som bedöms kunna få ett alltför stort underskott i de offentliga finanserna. För närvarande har rådet denna befogenhet. Enligt konventets förslag skall kommissionen få möjlighet att lägga ett förslag när det gäller beslut huruvida ett land har ett alltför stort underskott och även ett förslag till rekommendation om åtgärd för landet i fråga. Det innebär en stärkt roll för kommissionen eftersom det krävs enhällighet i rådet för att ändra i kommissionens förslag. Konventet föreslår också att den berörda medlemsstatens röst inte skall räknas vid beslut om att utfärda en rekommendation när en medlemsstat inte efterlever de allmänna riktlinjerna eller vid beslut huruvida en medlemsstat har ett alltför stort underskott i de offentliga finanserna.”

According to the government of Sweden, the proposed amendments were not sweeping, but it noted some movement towards added influence for the Commission and the European Parliament. The Commission would be allowed to issue “first warnings” to member states with excessive government deficits, and the Commission would propose the assessment and the measures, meaning that the Council would have to act unanimously to counter the proposals. The member state in question would be excluded from voting.

On pages 49─50 the Swedish government stated the importance of functioning economic policy coordination in order to manage the cross-border effects of member states’ economic policies and for the sake of monetary union. The government gave its approval to the existing basic legal framework and the competences, but some strengthening could be in order to ensure member states’ compliance. Still, economic policy was primarily a matter for national competence:

”En väl fungerande ekonomisk-politisk samordning är viktig för att unionen skall kunna hantera gränsöverskridande effekter av medlemsstaternas ekonomiska politik och för att valutaunionen skall fungera väl. Det nuvarande ramverket och kompetensfördelningen för den ekonomisk-politiska samordningen är i grunden bra. Instrumenten för genomförande och uppföljning kan dock behöva stärkas, bl.a. för att befästa medlemsstaternas åtaganden. Det är därför positivt att konventet lägger förslag som går i denna riktning. En viktig princip är att den ekonomiska politiken är nationell och faller inom medlemsstaternas befogenhet även om viss samordning är av gemensamt intresse.”

***

United Kingdom

Between the European Convention and the intergovernmental conference, the UK government presented its view ─ most British ─ in ‘A Constitutional Treaty for the EU; The British Approach to the European Union Intergovernmental Conference 2003’ (Cm5934, September 2003), under Economic Governance on pages 34─35:

“74. Many of the issues discussed in the European Convention and raised in the draft Constitutional Treaty could have significant consequences for the future performance of EU economies. The draft Constitutional Treaty proposed by the Convention has proposed changes to the EU’s existing system of economic governance and other aspects of the EU fiscal framework; the institutional balance between the Union and Member States in economic policy coordination; and the role of the Eurogroup, the informal grouping of euro area finance ministers. The Government will oppose any such proposals which might lead to unnecessary rigidities or undermine the central role of Member States in determining their economic policies. It will work to ensure outcomes that will bolster stability, promote flexibility and enhance the ability of European countries to raise productivity and employment levels.

75. The draft Treaty does not alter the terms of the UK’s Economic and Monetary Union protocol (allowing the UK to decide whether or not to join the euro). This will need formally to be re-adopted on the conclusion of the IGC.”

***

In the following instalment we look at excessive government deficits in the Constitutional Treaty.


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".

***

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

EU: Excessive government deficits Ic

The Elysée summit of the European G8 members confirmed what these posts on EMU economic governance have been waiting for: The ‘exceptional and temporary’ government deficits above the reference value indicated by Article 104 TEC are just waiting to happen. The catchword now is ‘flexibility’.

Still, we turn to the current treaty level rules concerning excessive government deficits within the context of economic and monetary union (EMU). The protocol contains the reference values, waiting to be sidelined for the time being.

***

Protocol on excessive deficit procedure

Protocol (No. 20) on the excessive deficit procedure (1992), as published in the latest consolidated version of the treaties, OJ 29.12.2006 C 321 E/293─294:

THE HIGH CONTRACTING PARTIES,

DESIRING to lay down the details of the excessive deficit procedure referred to in Article 104 of the Treaty establishing the European Community,

HAVE AGREED upon the following provisions, which shall be annexed to the Treaty establishing the European Community.

Article 1

The reference values referred to in Article 104(2) of this Treaty 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 104 of this 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 this Treaty. 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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Anchors are the reference values: Government deficit 3 percent of GDP and government debt 60 percent of GDP.

It is important to see that the deficits and debt levels refer to all levels of government, including social security funds.

The upcoming Eurogroup, ECOFIN and European Council meetings can be expected to tally the ‘exceptional and temporary’ deficits above previous levels.

How much beef is there still in the Stability and Growth Pact, already revised?


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