Parliament gives green light to future economic governance plans

Eurozone members will no longer be able simply to ignore Commission warnings to correct their budgetary policies. The economic governance legislation voted in plenary on Wednesday should also help ensure that countries tackle unsound economic policies more promptly, considerably increases transparency and accountability and will improve the compilation of statistics to make them more reliable and accurate.

The vote came two weeks after certain Member States, led by France, climbed down from their insistence that a warning to a country would require approval by the Council. MEPs feared that this would lead to back-room deals in which countries needing to reform their budgetary policies would be let off the hook. Instead, the agreement will force Eurozone governments to muster a majority to block a warning being issued. Neither can the governments opt to do nothing, since such a warning will in any event be issued if the vote is not taken within 10 days of it being proposed by the Commission. And if governments do vote to reject a warning, they will need to explain themselves to the European Parliament in public.

Parliament also won the right to invite finance ministers from countries that have received a warning to hearings. Member States long insisted that this should not be the case.

MEPs also negotiated that the Commission would look not only at countries with a trade deficit, but also at those running current account surpluses, when investigating the sources of macroeconomic instability. Member States had initially insisted that only current account deficit countries would be investigated. The agreed rules will therefore require the Commission to consider the possibility that countries like Germany or the Netherlands are a cause of instability and reforms could be asked of them too.

Apart from the issues settled, many other improvements were brought about by pressure from MEPs:

• putting into law the European semester (annual assessment of national budgets for economic policy coordination), through its inclusion in the legal texts. This will give the procedure much more weight and bite,
• establishing a legal framework for the surveillance of the national reform programmes
• increased powers for the Commission, which can ask for more information to be supplied to it than envisaged in the original proposals and through on the spot checks to Member States,
• A new fine (0.2% GDP) for Eurozone members which supply fraudulent statistics with regard to data on deficits and debt,
• an interest-bearing deposit sanction (0.1% GDP) for Eurozone members in cases where a Member State fails to act on recommendations to rectify a macroeconomic imbalance.
• greater independence of statistical bodies and standards for the compilation of statistics, and
• safeguarding social bargaining processes and wage setting agreements when delivering recommendations.

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