Download The 6-pack: tools for a stronger economic governance

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The 6-pack: tools for a stronger
Economic Governance
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2 legs + 1 common foundation = 6 legislative proposals
Fiscal surveillance
Macroeconomic surveillance
- Revisions to both the preventive arm
and the corrective arm of the Stability
and Growth Pact
New regulation on prevention
and correction of
macroeconomic imbalances
- New Directive on national fiscal
frameworks
Enforcement
Enforcement
New regulation on effective
enforcement of budgetary
surveillance
New regulation on effective
enforcement of macroeconomic
surveillance
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Fiscal surveillance: Reinforcing the preventive arm
Where do we stand?
 Central concept of the Stability and Growth Pact is the medium-term budgetary
objective (MTO) = a numerical value for the structural deficit which ensures:
(i) a safety margin against breaching 3% of GDP;
(ii) sustainable public finances or rapid progress towards sustainability
(iii) room for stabilisation over the cycle
 Adjustment path towards MTO = 0.5%; more in good and less in bad times.
 Enforcement through peer pressure (Council recommendations).
What are the current difficulties?
 Central concept is based on the structural balance which is not observable 
difficulties with estimates, time-lag, etc…
 Enforcement through peer pressure  lacks teeth
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Fiscal surveillance: Preventive arm
What would change in practice?
 Innovation: an expenditure rule = operational guidance for adjustment path towards
MTO
Def: expenditure growth should not exceed a reference rate of potential GDP growth
 If significant deviations from the rule = 0.5% of GDP in one or 0.25% of GDP in two
consecutive years  recommendation + interest-bearing deposit for euro area MS
 Faster adjustment path (>0.5%) if debt > 60% of GDP or pronounced risks in overall debt
sustainability
 Safeguard clauses: can deviate from the rule if unusual event or severe economic
downturn for the euro area or the EU as a whole
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Fiscal surveillance: More focus on debt in the corrective arm
 Innovation: more focus on
debt + numerical benchmark
Where do we stand?
 The core concept is to tackle gross policy
errors:
- government deficit in excess of 3%
- government debt ratio in excess of
60% of GDP or not sufficiently diminishing
towards the reference value.
What are the current difficulties?
 No definition of the concept of “sufficiently
diminishing debt”  EDP only launched on the
basis of deficit criterion
EDP can be launched if deficit
below 3% of GDP but debt ratio in
excess of 60% of GDP and nondiminishing at satisfactory pace
Definition of satisfactory pace by a
numerical
benchmark
=
differential with respect to the 60%
of GDP reference value declines
over 3 years in the order of onetwentieth per year.
No-automaticity: Non-respect of
numerical benchmark for debt will
not automatically result in EDP:
decision will involve assessment of
all relevant factors.
Transition period for countries in
EDP: 3 years
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Fiscal surveillance: More effective enforcement mechanisms
 Innovation: timely, graduated and effective
mechanisms for compliance
Where do we stand?
 No enforcement mechanism in
the preventive arm.
 Sanction in the corrective arm
but very late in the procedure
(Art 126(11))
 Cohesion Fund commitments
conditional on compliance with
effective action in EDP (Art
126(8)) but only to a subset of
Member States.
 Never applied so far!
 New sanctions for euro-area MS both in the
preventive and the corrective arm.
 Preventive arm: interest-bearing deposit in case of
significant deviations from expenditure rule
 Corrective arm:
(i) non-interest-bearing deposit when EDP is
opened (Art 126.6);
(ii) fine in case MS do not take effective action to
correct excessive deficit (Art 126.8).
 Reverse QMV voting: Commission proposal for
sanctions adopted unless the Council rejects it.
 Size of the sanctions: 0.2% of GDP
 Fines collected assigned to stability mechanisms
to provide financial assistance.
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Fiscal surveillance: national fiscal frameworks better reflecting
EU framework
Where do we stand?
Considerable variation in the
quality of national fiscal
framework
 Well-designed fiscal
frameworks can substantially
contribute to sound fiscal
policies
EU budgetary framework
insufficiently entrenched in
national frameworks
 Need for strengthening
national ownership and having
uniform requirements as
regards the rules and
procedures forming the
budgetary frameworks of the
MS
 Innovation: minimum characteristics for national
budgetary frameworks
 Accounting and statistical reporting
 Rules for preparation of the forecasts for budgetary
planning
 Country-specific numerical fiscal rules
 Budgetary procedures
 Medium-term budgetary frameworks
 Independent monitoring and analysis
 Regulation of fiscal relationships between public
authorities across sub-sectors of general government
 Implementation by end-2013
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The prevention and correction of macroconomic
imbalances (EIP)
• A regulation enhanced and broader macroeconomic surveillance for all Member States
focussing on macroeconomic imbalances.
– preventive arm to avoid the build-up of imbalances
– corrective arm with strong enforcement mechanisms for
euro area members where spill-overs are stronger
• A Regulation with enforecment measures for noncompliances (Euro-area only)
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The preventive arm of the EIP
No problem
Procedure stops.
Alert
mechanism
Commission
present report
based on
scoreboard
indicators and
economic reading
identify Member
States where
potential risks exist
ECOFIN/Euro
group discuss for
the Commission to
take account of.
In-depth review
Commission prepares in depth
country studies, using much wider
set of indicators and analytical
tools, and takes account of
- other Council recommendations
- plans in SCP/ NRPs;
-warnings or recommendations from
the ESRB.
Imbalance exists
Commission/Council
recommendations
under Article 121.2
Severe imbalance
Commission/Council
recommendation on
the existence of an
« excessive
imbalance » under
article 121.4
The corrective arm of the EIP
Commission/
Council:
assess corrective
action plan (CAP)
within 2 months
Sufficient CAP
Commission/Council
recommendation
endorsing CAP listing
corrective actions and
the deadlines for taking
them (*)
Insufficient CAP
Commission/ Council
recommendation
inviting Member States
to submit new CAP
within 2 months as a
rule
Member State:
submits monitoring
reports on corrective
actions based on
agreed reporting
deadlines
Member State:
Submits new CAP
Commission/Council:
-Assess corrective
actions in monitoring
reports / assess CAP
Commission/Council:
-Assess corrective
actions in monitoring
reports / CAP
Sufficient actions:
Council place EIP in
abeyance and
monitoring continues
according to agreed
deadlines
Sufficient:
Council place EIP in
abeyance and
monitoring continues
according to agreed
deadlines
Insufficient actions:
Commission/Council
adopt decision on noncompliance and a
recommendation
setting new deadlines
for corrective action
Imposition of interestbearing deposit
Insufficient
Commission/Council
adopt second
successive decision on
non-compliance
Interest-bearing
deposit becomes fines
Sufficient CAP:
Endorsement of actions
and start of monitoring
(see *)
Insufficient CAP:
Commission/Council
adopt second
successive decision on
insufficient CAP.
Imposition of fine
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Next steps
• Finalisation of legal texts
• Finalisation of the design of the initial scoreboard
of early-warning indicators
• Implementation of the EIP as part of the European
Semester starting with a first Alert Mechansim
Report