Brussels expects row over budget peer-review plan

 

EURO STRATEGY:THE EUROPEAN Commission is bracing for a battle with Germany, France and other member states over proposals to compel the 16 euro states to submit draft budgets to Brussels before they are presented in parliament.

Saying the disruption caused by the Greek financial crisis showed the time had come to reinforce “economic governance in the EU”, the commission wants finance ministers from the euro countries to conduct a peer review of draft budgets and to seek revisions “in the case of obvious inadequacies”.

The plan was set out by the EU executive in an 11-page communication so the measures do not have the status of legislative proposals.

The commission produced the proposal on the same day as it agreed to allow Estonia to become the 17th member of the single currency next January.

The plan sets out to tackle excessive government debt by strengthening the stability and growth pact. It includes the possibility of imposing “interest-bearing deposits in case of inadequate fiscal policies when member states make insufficient progress towards their budgetary medium-term objectives in good economic times”. The commission would conduct an in-depth analysis of the underlying risk of “emerging imbalances” in government finances.

Euro finance ministers – in a vote in which the government concerned would have no veto – would invite the government to take the “necessary action” to remedy the situation. The ministers could step up surveillance and decide, on a commission proposal, to issue economic policy recommendations if governments fail to take measures to correct imbalances.

“Depending on the specific challenges of the economy concerned, policy recommendations could address both the revenue and expenditure side of fiscal policy . . . as the crisis has shown that the evolution of the composition of government revenues is also an important lead-indicator of potential imbalances,” the communication said.

“Recommendations could address the functioning of labour, product and services markets in line with the broad economic policy and employment guidelines. They should also cover macro-prudential aspects to prevent or curb excessive credit growth or exuberant asset price developments.”

The plan calls for a system of early peer review of national budgets that would detect emerging imbalances. “In full respect of the prerogatives of national parliaments, the early peer review would provide guidance for the preparation of the national budgets in the following year.” With euro finance ministers set to discuss the commission’s paper at their regular meeting next Monday night, the EU executive plans to produce draft legislation swiftly. It said the first budget cycle under the new rules should start at the beginning of next year.

Already, however, there are signs of resistance from Germany and France. “We are all striving for deeper and better co-ordination, but what is not open to question is the solemn responsibility of national parliaments,” a German source said.

After a cabinet meeting in Paris, the response from the French government’s spokesman was frosty. “It’s parliament that votes on the nation’s budgets, it’s not the European Commission that votes on the budget of the French nation,” he said.

While diplomats from other member states privately expressed scepticism, commission president José Manuel Barroso cast the drive for an “economic union” in stark terms for the euro.

Members of the currency would be “better to forget monetary union altogether” if they did not want to go down that road, he said.

“I am confident that member states are determined to follow suit on our proposals to reduce the risks resulting from our interdependence for the benefit of our citizens and demonstrate our willingness to protect the euro,” Mr Barroso added.

The proposals make use of provisions in the Lisbon Treaty which empower euro finance ministers to vote by a qualified majority to adopt “measures specific” to euro members.

The new system “will imply deeper surveillance, more demanding policy co-ordination and stronger follow-up”. As part of the reforms, the commission is advancing plans to create a permanent crisis-resolution mechanism in the euro zone.

EXAMINING NATIONAL DRAFT BUDGET PLANS: THE TREATY CLAUSE ON WHICH THE COMMISSION IS LEANING

In proposing that Eurogroup finance ministers should have the right to examine draft budget plans from all euro countries, the European Commission is leaning on the following clause in the Lisbon Treaty.

Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union Article 136.

1. In order to ensure the proper functioning of economic and monetary union, and in accordance with the relevant provisions of the Treaties, the Council shall, in accordance with the relevant procedure from among those referred to in Articles 121 and 126, with the exception of the procedure set out in Article 126 (14), adopt measures specific to those Member States whose currency is the euro: (a) to strengthen the co-ordination and surveillance of their budgetary discipline; (b) to set out economic policy guidelines for them, while ensuring that they are compatible with those adopted for the whole of the Union and are kept under surveillance.

2. For those measures set out in paragraph 1, only members of the Council representing Member States whose currency is the euro shall take part in the vote.

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

– ARTHUR BEESLEY