Excessive deficit procedure: Finland

The previous blog post, Excessive deficit procedure: Denmark, looked at the relevant summaries of EU legislation and found that they need to be updated.

We check if the Directorate-General for Economic and Financial Affairs (DG ECFIN) offers updated introductory materials.

The European Union is about to start an excessive deficit procedure (EDP) concerning Finland, one of the three countries in the latest batch.

We offer links to the relevant documents, and assess the timely publication of legal materials on the Eur-Lex portal in this case.



DG ECFIN

The European Commission’s Directorate-General for Economic and Financial Affairs (DG ECFIN) offers a number of web pages:



The web page Stability and Growth Pact describes the basic features, and it explains the meaning of the preventive arm and the dissuasive arm (the excessive deficit procedure, EDP) of the SGP, including possible sanctions for euro area members.



The web page Stability and convergence programmes offers an overview of the annual programmes and how they are monitored. It could be clearer with regard to the different programmes: Eurozone countries prepare stability programmes (to maintain fiscal balance), whereas the other member states are seen as on a course towards fulfilment of the criteria for euro adoption, and they submit convergence programmes.



Excessive deficit procedure is a web page, which briefly explains the EDP and mentions the trigger (reference) values: the deficit-to-GDP ratio of 3% and the debt-to-GDP ratio of 60%. The possibility to impose sanctions on euro area members, but not on countries still on the convergence path, could have been explained more clearly.



There is also a web page Relevant legal texts and guidelines, which is helpful for those who want to dig deeper.


Comment


Subject to the remarks already made, my impression is that the introductory web pages offered by DG ECFIN are adequate to the needs of the general reader, who wants information at a glance. The pages have been updated fairly recently, and they take account of the Lisbon Treaty.

ECFIN offers few thrills of web design, but those who want to find news and more detailed factual information are fairly well served.



Excessive deficit procedure Finland



We can find updated information about the excessive deficit procedure initiated against Finland and two other countries on the ECFIN web pages.

However, for the sake of clarity and transparency, this blog argues that legal information concerning the European Union should be published centrally and in a timely manner on the legal portal Eur-Lex.

Formally, the Commission decided to institute the EDP regarding Finland on 15 June 2010. Three SEC documents have already been published on Eur-Lex (in the working languages of the Commission: English, French and German):




COMMISSION OPINION on the existence of an excessive deficit in Finland; Brussels, 15.6.2010 SEC(2010) 745 final




Proposal for a COUNCIL DECISION on the existence of an excessive deficit in Finland; Brussels, 15.6.2010 SEC(2010) 746 final




Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in Finland; Brussels, 15.6.2010 SEC(2010) 747 final


Substance


The Commission recommends that the Council adopts the following recommendation addressed to the Republic of Finland:

(1) Recognising that Finland’s budgetary position in 2010 resulted from measures amounting to 1.8% of GDP in 2009 and 1.1% in 2010, which is an adequate response to the downturn and were in line with the European Economic Recovery Plan principles, as well as from the free play of automatic stabilisers, the Finnish authorities should put an end to the present excessive deficit situation at the latest by 2011.

(2) The Finnish authorities should bring the general government deficit below 3% of GDP in a credible and sustainable manner. Specifically, to this end, the Finnish authorities should:

(a) implement the fiscal measures in 2010 as envisaged in the latest update of the stability programme, while ensuring that the planned breach of the 3%-of-GDP reference value would remain contained and temporary;

(b) ensure a fiscal effort of at least ½% of GDP in 2011;

(c) specify measures to ensure that the planned correction of the excessive deficit in 2011 is secured.

(3) The Council establishes the deadline of [13 January 2011] for the Finnish government to take effective action to specify the measures that will be necessary to progress towards the correction of the excessive deficit. The assessment of effective action will take into account economic developments compared with the economic outlook in the Commission services' spring 2010 forecast.

The Finnish authorities should report on progress made in the implementation of these recommendations in a separate chapter in the forthcoming updates of the stability programme until the abrogation of the excessive deficit procedure.

Ralf Grahn

Excessive deficit procedure: Denmark

Are you looking for materials on how budget monitoring works in the European Union, and what happens if the deficit of a member state balloons?

Are you interested in the excessive deficit procedure (EDP), or the budgetary position of Denmark?



Summaries of EU legislation



For the general reader and as introductory reading for students and others who need to start digging deeper, the Summaries of EU legislation offer first aid.



The thematic web page on Economic and monetary affairs links to various themes. One of these is Stability and growth pact and economic policy coordination.

Let us take a look at two of the pages on offer.



First, to get a picture of the framework: Preventive arm: surveillance of budgetary positions.



Then, for an overview of how the EU tries to steer member states back to the narrow path of budget discipline: The corrective arm: the excessive deficit procedure.


Comment


In both cases we notice that the descriptions are generally still valid, but the summaries have not been updated since 2007.

More than six months from the entry into force of the Lisbon Treaty, the pages still refer to the old treaty (TEC) instead of the relevant provisions of the Treaty on the Functioning of the European Union (TFEU).

For the summaries to serve their purpose, they need to be updated (even rewritten and cleared of debris) regularly.



New excessive deficit procedures


Even the more prudent EU governments have seen their budget positions deteriorate as a consequence of the financial and economic crisis: deficits overshooting the 3 per cent reference value or debt levels surpassing 60 per cent of the GDP.




On 15 June 2010 the European Commission’s D-G Economic and Financial Affairs (ECFIN) has concluded that excessive deficits exist in Cyprus, Denmark and Finland, and it has recommended deadlines for their correction to the Council (further links available).



You can gain an overview of the ongoing excessive deficit procedures, now concerning almost all member states, and for more information you can click on the links to the individual countries.

The country pages concerning Cyprus, Denmark and Finland have been updated.



Denmark


On the legal portal Eur-Lex, under preparatory acts, SEC documents, we find the three relevant documents concerning Denmark (available in English, French and German, the working languages of the Commission):




COMMISSION OPINION on the existence of an excessive deficit in Denmark; Brussels, 15.6.2010 SEC(2010) 742 final




Proposal for a COUNCIL DECISION on the existence of an excessive deficit in Denmark; Brussels, 15.6.2010 SEC(2010) 743 final




Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in Denmark; Brussels, 15.6.2010 SEC(2010) 744 final


The documents follow an established pattern, now based on Article 126 TFEU. The Commission reports the conclusion that an excessive deficit exists (in Denmark), it proposes that the Council confirms the existence, and it makes a recommendation to the Council on the corrective measures to recommend to the country.




Ralf Grahn

Excessive deficit procedure: Cyprus

We do not know the future outcomes of the Van Rompuy task force on economic governance, but Treaty on the Functioning of the European Union (TFEU) and the Stability and Growth Pact form the existing framework for multilateral budget surveillance and efforts to curb excessive government deficits in the European Union.

The purpose of this blog entry is twofold: 1) This post offers an example of how the excessive deficit procedure works. 2) The blog entry leads readers to the materials concerning the budget situation in Cyprus and the first stages of the excessive deficit procedure.



About a week ago, we followed the updated stability programme of Cyprus, the Commission’s report and opinion, and the Council’s opinion on the updated stability programme of Cyprus 2009-2013.

Now we follow the next steps.



Excessive deficit procedure (EDP)


From the viewpoint of transparency, we note that the next steps by the European Commission have been published quickly as preparatory documents on the legal portal Eur-Lex.

At this stage the documents are available only in the three working languages of the Commission: English, French and German.

The first document explains the excessive deficit procedure (EDP) according to Article 126 TFEU and concludes that an excessive deficit exists in Cyprus:




COMMISSION OPINION on the existence of an excessive deficit in Cyprus; Brussels, 15.6.2010 SEC(2010) 739 final (6 pages)



The second document is a proposal for a formal Council decision on the existence of a deficit in Cyprus:



Proposal for a COUNCIL DECISION on the existence of an excessive deficit in Cyprus; Brussels, 15.6.2010 SEC(2010) 740 final (9 pages)


The third document contains, in draft form, specific recommendations from the Council to the Republic of Cyprus to put an end to the excessive deficit situation:




Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in Cyprus; Brussels, 15.6.2010 SEC(2010) 741 final




Ralf Grahn

EU Commission on stability programme Cyprus

The blog post EU: Updated stability programme Cyprus looked at the economic projections and reform plans of the island state in its own right, but also as an example of the dialogue on economic policy coordination between the European Union and the member states.


Transparency

This blog has criticised the lag between Council opinions and publication in the Official Journal of the European Union (OJEU). However, the Commission deserves brownie points for openness, because it started publishing its findings.

Thanks to the European Commission the monitoring processes are more transparent and credible than they could be under a restrictive interpretation of the Treaty on the Functioning of the European Union (Cf Article 126(7) TFEU).



The Stability and Growth Pact (SGP) pages of the Commission’s D-G Economic and Financial Affairs offer an overview of the member states and the various stages, including links to the documents:

Stability or convergence programme (update);

Commission services’ assessment;

Commission recommendation for a Council opinion;

Council opinion.




The overview page on country-specific excessive deficit procedures (EDP) is also useful.



Commission report

One month from the submission of the updated stability programme of Cyprus, the Commission offered its assessment. [Contradictory submission dates are offered in different documents: 1 or 13 April 2010.]



On 12 May 2010 Commission published a press release (IP/10/564) with the main findings on the Cypriot stability programme, including key projections.


For those interested, the Commission’s assessment is available:




Cyprus - Report prepared in accordance with Article 126(3) of the Treaty; Brussels, 12.5.2010 SEC(2010) 590 final (11 pages)


Article 126(3) TFEU is explained in the following way by the Commission (page 2):

The Stability and Growth Pact requires the Commission to prepare a report such as the present one whenever an actual or planned deficit of a Member State exceeds the 3% of GDP reference value. This report, which represents the first step in the “excessive deficit procedure” (EDP), analyses the reasons for the breach of the reference value with due regard to the economic background and all other relevant factors.

The Commission reached the following main conclusions with regard to Cyprus:

According to the April 2010 EDP notification the general government deficit in Cyprus reached 6.1% of GDP in 2009, above and not close to the 3% of GDP reference value. The planned excess over the reference value can be qualified as exceptional within the meaning of the Treaty and the Stability and Growth Pact. However, it cannot be considered temporary. This suggests that the deficit criterion in the Treaty is not fulfilled.

General government gross debt remains below the 60% of GDP reference value in 2009. However it is on a rising trend and it is planned to exceed the reference value in 2010. The debt ratio cannot be considered as diminishing sufficiently and approaching the reference value at a satisfactory pace within the meaning of the Treaty and the Stability and Growth Pact. This suggests that the debt criterion in the Treaty is not fulfilled.

Commission recommendation

At the same time, based on its assessment, the Commission made a recommendation to the Council, in practice a draft decision:



Recommendation for a Council Opinion on the updated stability programme of Cyprus, 2009-2013; Brussels, 12.5.2010 SEC(2010) 595 final (13 pages)



Technical analysis

The Cypriot stability programme was analysed by the staff of DG ECFIN. The technical analysis was finalised on 12 May, although the publication date is 26 May 2010:



Cyprus: Macro fiscal assessment – An analysis of the April 2010 update of the stability programme; Brussels, 26 May 2010 ECFIN/295829/2010 -EN (30 pages)


It took into account information published after the preparation of the Cypriot programme, such as the Commission services’ fresh forecast. The Spring Forecast is also available on the Commission’s web pages:



European Economic Forecast - Spring 2010 (published 5 May 2010; 225 pages)



Comment



In my view, DG ECFIN’s web pages with the Stability and convergence programmes and other information are fairly navigable and clear (although some design effort would not go amiss).

With regard to Cyprus, we find the programme update, the technical assessment and the Commission’s formal recommendation.

Only the Ecofin Council opinion (of 8 June 2010) is still missing.




Ralf Grahn

Deficit reduction in Greece: Official publication

There is a striking difference between financial markets and news reporting operating globally around the clock on the one hand, and the complex task of officially publishing information about the European Union in all the languages on the other hand.

One month ago the EU Council made a decision on fiscal surveillance and deficit reduction in Greece. Today the Council Decision has been published in the Official Journal of the European Union (OJEU):



COUNCIL DECISION of 10 May 2010 addressed to Greece with a view to reinforcing and deepening fiscal surveillance and giving notice to Greece to take measures for the deficit reduction judged necessary to remedy the situation of excessive deficit; OJEU 11.6.2010 L 145/6.


Timely information

Even if OJEU publication is slow, there are quicker ways to access information.



The European Commission’s D-G Economic and Financial Affairs offers country-specific web pages on excessive deficit procedures (under the general headline of the Stability and Growth Pact). We find a chronological listing of EDP actions concerning Greece, including the latest Council Decision of 10 May 2010.

The Council pages I checked were less easy to navigate and not as up to date.




Ralf Grahn

Tracking eurozone crisis measures: Beware the ides of March

In Tracking Eurozone crisis measures: Half empty or half full? (23 May 2010) we recapitulated the official ECB and EU decisions published and sketched the road map to track the communications from the institutions and informal groups on the eurozone crisis and economic governance in a few blog posts.

Even if most of the flurry of activities has been seen in May, we have cause to see how our leaders have acted to avert the dangers.



Beware the ides of March offers a reasonable starting point for brief retrospection, although the storm had been brewing for a time.



ECOFIN 16 March 2010



3003rd Council meeting Economic and Financial Affairs, Brussels, 16 March 2010 (document 7498/10)


On the excessive deficit procedure – follow-up to the decision on Greece, ECOFIN reached the following conclusions:

The Council examined a communication from the Commission assessing action taken by Greece in response to the decision it took on 16 February on the correction of Greece's excessive deficit.

The Council welcomed the first report by Greece, submitted on 8 March, and the Commission's communication. It shared the Commission's view that Greece is appropriately implementing the Council's decision and Greece's stability programme. It welcomed the additional measures announced by the Greek government on 3 March, amounting to 2% of gross domestic product (GDP) and consisting of permanent revenue-increasing measures and permanent expenditure cuts in equal shares. In line with the Commission's assessment, the Council considered that these additional measures appear sufficient to safeguard budgetary targets for 2010, provided that they are implemented effectively, fully and in a timely manner.

In its 16 February decision, adopted under article 126(9) of the Treaty on the Functioning of the European Union, the Council:

– gave notice to Greece to bring its government deficit below 3% of GDP, the reference value set by the EU treaty, by 2012;

– set out a timetable of measures to be taken, including a target of 8.7% of GDP for its 2010 budgetary deficit, which represents a 4 percentage points reduction from the estimated 12.7% deficit for 2009;

– set 16 March as the first of a series of deadlines for reporting on measures taken;

– stated that, to the extent that a number of risks associated with the specified deficit and debt ceilings materialise, Greece would announce, in its first report, additional measures to ensure that the 2010 budgetary target is met.

Greece has been subject to an excessive deficit procedure since April 2009.

Caesar: The ides of March are come.

Soothsayer: Ay, Caesar; but not gone.

(Shakespeare: Julius Caesar Act III, Scene I)



Greece was under close ECOFIN scrutiny and the Greek government had announced corrective measures, but the full force gale had not yet lifted them up to say nothing about taking them home.



Ralf Grahn

EU: Special legislative procedure (V)

Once in a blue moon a special legislative procedure facilitates change by replacing treaty level change including ratifications. We find an example concerning the excessive deficit procedure.

On the other hand, usually unanimous Council legislation according to a special legislative procedure is an indication that unanimity lacked in the first place and is hardly to be expected later. Despite catastrophic results, prudential supervision seems to be a case in point.

Our Odyssey of the Council of the European Union and the special legislative procedure, takes us through the consolidated version of the Lisbon Treaty, published in the Official Journal of the European Union (OJEU) 9.5.2008 C 115.


***

Excessive deficit procedure

Article 126 of the Treaty on the Functioning of the European Union (TFEU) spells out principle (half forgotten due to the economic crisis) that EU member states shall avoid excessive government deficits. It then lays down the roles of the Commission, the Economic and Financial Committee and the Council leading to an assessment whether an excessive deficit exists, as well as recommendations and measures.

Additional provisions concerning the procedures are found in Protocol (No 12) on the excessive deficit procedure. The Protocol is legally binding and it contains treaty level provisions. Amending them would require both unanimous agreement and ratifications, but here the member states have agreed to facilitate change to a degree. The provisions of the Protocol may be replaced unanimously by a special legislative procedure, without time-consuming ratifications (Article 126(14) TFEU).


Article 126(4) TFEU

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.


***

ECB and prudential supervision

Article 127 TFEU sets out the objectives and the tasks of the European System of Central Banks (ESCB) and the European Central Bank (ECB). The ESCB shall contribute to the smooth conduct of policies pursued by the competent (national) authorities relating to the prudential supervision of credit institutions and the stability of the financial system.

Before the current financial and economic crisis, the member states’ governments we checked (United Kingdom, Sweden, Finland) congratulated themselves for retaining supervision at the national level. Even after the catastrophic results, leading to mind-boggling rescue operations involving EU-wide capital injections and guarantees of 3,000 billion euros, it is unsure to what extent the EU governments are prepared to create effective supervisory structures.

Just in case, the Lisbon Treaty contains the possibility to empower the European Central Bank, but subject to improbable unanimity and a special legislative procedure. The insurance sector is excluded even from the remote possibility.


Article 127(6) TFEU

6. The Council, acting by means of regulations in accordance with a special legislative procedure, may unanimously, and after consulting the European Parliament and the European Central Bank, confer specific tasks upon the European Central Bank concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings.


***

We have seen one facilitating and one obstructing example of the special legislative procedure, where a unanimous Council is the main actor and the European Parliament is only consulted.



Ralf Grahn

EU: Excessive government deficits Ih

The Ecofin Council Conclusions ‘Immediate responses to financial turmoil’ (Council document 13930/08, 7 October 2008) shed some light on how ‘flexible’ the member states aim to be when implementing the EMU rules, namely the Stability and Growth Pact, including the excessive deficit procedure:

“The application of the Stability and Growth Pact should also reflect the current exceptional
circumstances, in accordance with the provisions of the Pact.”

In other words, the Pact can be bent, but not broken.

The Conclusions are available at:

http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/misc/103202.pdf


Ralf Grahn

EU: Excessive government deficits Ig

At the intergovernmental level, under the ‘old’ Stability and Growth Pact, the failure of France and Germany to avoid excessive budget deficits and the inability of the Council to decide on effective recommendations, in the first case where sanctions should have been meted out, brought the Stability and Growth Pact into disrepute and led to the subsequent court case launched by the Commission.


***

ECJ

The European Court of Justice was called upon to resolve questions relating to the excessive deficit procedure under the ‘old’ Stability and Growth Pact in case C-27/04, when the Council had left the procedure against France and Germany in abeyance.

The 13 July 2004 judgment of the ECJ in Commission / Council concerning annulment of measures of the Council 15 November 2003, was the following:

1. Declares the action of the Commission of the European Communities inadmissible in so far as it seeks annulment of the failure of the Council of the European Union to adopt the formal instruments contained in the Commission’s recommendations pursuant to Article 104(8) and (9) EC;

2. Annuls the Council’s conclusions of 25 November 2003 adopted in respect of the French Republic and the Federal Republic of Germany respectively, in so far as they contain a decision to hold the excessive deficit procedure in abeyance and a decision modifying the recommendations previously adopted by the Council under Article 104(7) EC;

See :
http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&Submit=Rechercher&alldocs=alldocs&docj=docj&docop=docop&docor=docor&docjo=docjo&numaff=C-27/04 &datefs=&datefe=&nomusuel=&domaine=&mots=&resmax=100

***

C-27/04 analysis

Barbara Dutzler and Angelika Hable, in ‘The European Court of Justice and the Stability Pact ─ Just the Beginning?’ (European Integration online Papers, EIoP, Vol. 9 (2005) No. 5, 1 March 2005), presented the excessive deficit procedure step by step, as applied to Germany and France, as well as a detailed analysis of the ECJ judgment:

http://eiop.or.at/eiop/pdf/2005-005.pdf

***

New Stability and Growth Pact analysis

Franz-Christoph Zeitler, member of the executive board of the Deutxche Bundesbank ‘What remains of the Stability and Growth Pact?’ (26 August 2005) assessed the ‘new’ Stability and Growth Pact, saying that overall the fiscal rules have been significantly weakened. By contrast, the challenges facing a stability-oriented fiscal policy in terms of public acceptance have grown considerably:


http://www.bundesbank.de/download/presse/reden/2005/20050826zeitler_en.pdf

According to Zeitler:

“The problems and weaknesses of the old pact were not due to it being too rigid. On the contrary, they lay in the weakness of the political decision-making process for the incentives and sanctions system and in a preventive effect which was too modest.”

***

Excessive deficit procedures: current and closed

The European Commission, Economic and Financial Affairs, offers information on the Stability and Growth Pact with a page on ongoing and closed excessive deficit procedures concerning specific countries:

http://ec.europa.eu/economy_finance/sg_pact_fiscal_policy/excessive_deficit9109_en.htm

***

This glimpse at the existing (‘new’) Stability and Growth Pact, including the excessive deficit procedure, has not resulted in conclusive evidence of the margins of appreciation or the limits of Council discretion concerning small, exceptional and temporary excesses above the reference value of 3 % of GDP, in a situation where fiscal restraint seems to be heading for abandonment (suspension) following the financial turmoil and weakening real economy in Europe.

Even under exceptional circumstances, extraordinary budgetary excesses would presumably have to meet the tests of necessity and proportionality.

Readers with knowledge and views are invited to comment.


Ralf Grahn

EU: Excessive government deficits Ie

Having established the TEC (EMU) ground rules concerning excessive government deficits, we take a look at the secondary European Community (EC) legislation.

Knowing that the times are exceptional, we are going to point out ‘loopholes’ designed to allow for temporary excesses despite the treaty based aim to comply with budgetary discipline.

***

Secondary legislation

Reporting deficits 3605/93 (amended)

Implementing legislation on the excessive deficit procedure (reporting deficits) 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
(OJ 31.12.1993 L 332/ 7).

The regulation has been amended three times, so this is a referral to the consolidated version:

http://eur-lex.europa.eu/LexUriServ/site/en/consleg/1993/R/01993R3605-20051223-en.pdf

The Regulation 3605/93 contains definitions based on the European System of Integrated Economic Accounts (ESA), reporting requirements concerning actual data and forecasts, and the quality of data.

***

Stability and Growth Pact

The current financial turmoil seems to lead to increased flexibility in the application of state aid rules (microeconomic) and budgetary discipline (macroeconomic). The Stability and Growth Pact contains the rules on excessive government deficits.

The Stability and Growth Pact originally consisted of a Council Resolution and two Regulations. When both France and Germany failed to live up to their obligations, the Pact was softened by superposing new European Council conclusions and amending the Regulations.

Therefore, a comparison between the original and the new Stability Pact may be in order. José Manuel González-Páramo, Member of the Executive Board of the ECB, described the differences to the Conference on “New Perspectives on Fiscal Sustainability” (Frankfurt, 13 October 2005):

http://www.ecb.int/press/key/date/2005/html/sp051013.en.html

I quote González-Páramo:

“Turning to the corrective arm, there are also a number of important changes here:
§ The first of these concerns the so-called “exceptional circumstances” clause. Under the Pact, a deficit above 3% of GDP is not necessarily considered excessive if it can be shown that the breach is “exceptional and temporary”. In this context, a deficit can be considered exceptional if it results from a “severe economic downturn”. The new Pact has made the definition of a severe economic downturn less stringent. Now, any negative growth rate, or even a period of positive but very low growth compared with the trend, can be considered exceptional.
§ The second change concerns the so-called “other relevant factors” to be taken into account when assessing whether a deficit above 3% of GDP is excessive. The old Pact referred to “other relevant factors” without specifying what these might be. By contrast, the new Pact provides an explicit and relatively long list of “other relevant factors” that have to be taken into account when assessing deficit developments in the context of the excessive deficit procedure.
§ The third significant change to the corrective arm concerns the deadlines for correcting excessive deficits. The default deadline for the correction of an excessive deficit remains the “year after its identification, unless there are special circumstances”. But whereas “special circumstances” were hitherto undefined, the list of other relevant factors will now serve as the basis for deciding whether special circumstances exist. In addition, the initial deadline for correcting an excessive deficit should be set such that a minimum fiscal adjustment of 0.5% of GDP per annum is required. And once the initial deadline has been set, it can be revised and extended at a later stage if a Member State is deemed to have taken effective action but fiscal targets are not met because of unexpected adverse economic events.”

For a more detailed view the reader can turn to the unsigned article ‘The Reform of the Stability and Growth Pact’ (European Central Bank, Monthly Bulletin August 2005, pages 59 ─ 73).

http://www.ecb.eu/pub/pdf/mobu/mb200508en.pdf

The ECB did not welcome the softening of the corrective arm of fiscal discipline through added flexibility and discretion.

***


Council Resolution (1997)

First, we have the political Resolution of the European Council on the Stability and Growth Pact Amsterdam, 17 June 1997 (OJ 2.8.1997 C236/1). The Resolution starts by emphasising sound government finances and describes the Stability and Growth Pact:

“III. The Stability and Growth Pact, which provides both for prevention and deterrence, consists of this Resolution and two Council Regulations, one on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies and another on speeding up and clarifying the implementation of the excessive deficit procedure.”

The Resolution on the Stability and Growth Pact then sets out guidelines addressed to the member states, the Commission and the Council.

The text is available in the Official Journal as well as on the web page:

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31997Y0802(01):EN:HTML

***

Surveillance Regulation 1466/97 (amended)

Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (OJ 2.8.1997 L 209/1) has been amended by Regulation 1055/2005 (OJ 7.7.2005 L 174/1), so this is a referral to the consolidated version:
http://eur-lex.europa.eu/LexUriServ/site/en/consleg/1997/R/01997R1466-20050727-en.pdf

The Surveillance Regulation sets out the rules covering the content, the submission, the examination and the monitoring of stability programmes and convergence programmes as part of multilateral surveillance by the Council so as to prevent, at an early stage, the occurrence of excessive general government deficits and to promote the surveillance and coordination of economic policies (Article 1).

We take note that stability programmes are submitted by so called participating member states adopting the single currency and convergence programmes continue to be submitted by non-participating states.

The recital of amending Regulation 1055/2005 (point 2) refers to the report entitled ‘Improving the implementation of the Stability and Growth Pact’ which aims to enhance the governance and the national ownership of the fiscal framework by strengthening the economic underpinnings and the effectiveness of the Pact, both in its preventive and corrective arms, to safeguard the sustainability of public finances in the long run, to promote growth and to avoid imposing excessive burdens on future generations. The report was endorsed by the European Council in its conclusions of 23 March 2005, which stated that the report updates and complements the Stability and Growth Pact, of which it is now an integral part.

In other words, the report is now an integral part of the Stability and Growth Pact, together with the amended Regulations.


To read the European Council conclusions 23 March 2005 with endorsed the Council Report ‘Improving the implementation of the Stability and Growth Pact’ in Annex II (pages 21 ─ 38), go to:

http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/84335.pdf


***

Excessive Deficit Procedure Regulation 1467/97 (amended)

Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ 2.8.1997 L 209/ 6) has been amended by Regulation 1056/2005, so this is a referral to the consolidated version:

http://eur-lex.europa.eu/LexUriServ/site/en/consleg/1997/R/01997R1467-20050727-en.pdf


The Regulation on implementation of the excessive deficit procedure sets out to speed up and clarify the excessive deficit procedure, having as its objective to deter excessive general government deficits and, if they occur, to further their prompt correction (Article 1).

The ECB article referred to above deals with the changes to the corrective arm in some detail, from page 63, under the following subheadings:

New definition of “severe economic downturn”

“Other relevant factors”

Pension reforms

Increasing the focus on debt and sustainability

Extension of deadlines for the correction of excessive deficits

Extension of procedural deadlines





Ralf Grahn