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.
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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
Showing posts with label reference value. Show all posts
Showing posts with label reference value. Show all posts
Sunday, 5 October 2008
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
We look at the existing EC (EU) treaty rules concerning excessive government deficits.
***
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
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