Cause and Effect in European Politics and Law

The European Parliament and the Council Agreed on the Economic Governance

Ralitsa Kovacheva, Evelina Topalova, September 16, 2011

The European Parliament and the Council of Ministers have agreed on the package of six legislative proposals aimed at strengthening the EU economic governance. The so-called 'Six Pack' is considered a key tool for preventing the current debt crisis in the eurozone to be repeated in the future. The first ideas in this respect were presented by the European Commission in May and June last year and in September they were combined in the form of a legislative package. Four of the six proposals deal with budgetary issues, including reform of the Stability and Growth Pact (SGP), and the other two are devoted to macroeconomic surveillance in the EU. In both areas a "special regime" is being introduced for the euro area, by offering more rigorous monitoring and financial penalties for countries that do not comply with the new rules.

In April 2011 the Economic and Monetary Affairs in the European Parliament approved the package, although with a thin majority, to allow negotiations with the Council to begin and the texts to be finally approved by June, as planned. However, this did not happen because of disagreements between MEPs and the Council (member states).

The most controversial issue proved to be changes in the Stability and Growth Pact that include shifting the focus on debt and the introduction of more stringent sanctions at an earlier stage and with more 'automatism'. The lawmakers have insisted the decisions for sanctions under the preventive arm of the SGP to be taken with the so-called reverse majority voting in the Council, as was the case with the decisions under the corrective arm of the Pact. The reverse majority rule means that the Commission's decisions on sanctions against member states will take effect automatically unless rejected by the Council with qualified majority.

The EP's argument was that this rule reduced the political horse-trading between the member states in order to avoid penalties. According to Corien Wortmann-Kool MEP (EPP, the Netherlands), who was the EP rapporteur on preventive measures, "this considerably strengthens the role of the European Commission both in the surveillance and in the sanctions procedure." Ms Wortmann-Kool also noted, that the EPP group strongly believes “that the package will help to foster sound and sustainable economic growth and social cohesion, by including the surveillance of the EU 2020 Strategy (European Semester) into the package which has now been agreed”.

In addition, Member States have committed to follow Commission's recommendations as a rule and if not, to give public explanations in the European Parliament. The deputies asked for national representatives to be heard in Parliament under the so called 'economic dialogue' which caused too much controversy, but ultimately the Parliament has prevailed. Sylvie Goulard (ALDE, France), who was rapporteur for budgetary surveillance in the euro area, said: "By having enshrined the principle of an open 'economic dialogue' with national ministers and Council we have achieved more transparency. This new agreement finally lives up to expectations. We were right to resist pressure from outside as well as within the House before the summer to conclude an inadequate deal. What we now have is a significant improvement compared to the June proposal and worth the perseverance."

Another controversial issue was the so called ‘symmetry’ in reporting of macroeconomic imbalances. As Parliament insisted, all countries will be subject to macroeconomic surveillance -both those with excessive deficits and with surpluses. The macroeconomic surveillance will include areas such as internal imbalances like indebtedness (public and private), unemployment, asset price development with particular attention on real estate and financial markets; and the external imbalances, including current account composition, balance and evolution etc. "We know today that a country can fall into a deep crisis as a result of problems in e.g. the banking or real estate sector. Challenges of this kind will in the future be tackled thanks to the new macroeconomic surveillance and its enforcement measures," Carl Haglund (ALDE, Sweden) said. He was EP rapporteur on enforcement measures to correct excessive macroeconomic imbalances in the euro area.

Member states will be assessed according to specific indicators. While the texts have been discussed in Parliament it has been agreed the catching up effect to be taken into account for the new member states. So there will be upper and lower thresholds of the indicators rather than an average European value.

The Greens gave a mixed response to the deal with the Council. "Despite the lofty ambitions, this 6-Pack will fail to provide the basis for a robust and sustainable system of economic governance for Europe," Green economic affairs spokesperson Philippe Lamberts (France) commented. The group's argument for this position was repeatedly pointed out during the parliamentary debates on the package - that “the exclusive preoccupation with austerity” would increase poverty and destroy public support for the European project. "There is clearly a need for strong, binding limits to public deficits but this has to take fully into account social justice and future investments in the EU," the Greens stated.

For similar reasons, the Socialists and Democrats are also sceptical of the economic governance package, which they say does not provide incentives for growth and employment. S&D spokesman for economic and monetary affairs Udo Bullmann (Germany) commented: "This is an austerity package that leaves no room for manoeuvre for investment in key sectors linked to the EU2020 strategy, such as education, innovation or energy efficiency." According to the Socialists, it is „extremely questionable” whether the financial sanctions are the right way to stabilise troubled economies.

The European Parliament will vote on the economic governance package during its session in the last week of September. The six proposals have to be finally approved by the Council in order to take effect. Since the new rules will have significant impact in the Member States, euinside focused public attention to them by organising discussions on the subject (in Brussels and Sofia). We have also followed the entire debate on the European level - from the first proposals to the adoption of the package.