Excessive Deficit Regulation

The Excessive Deficit Regulation (PDF) builds on the six-pack legislation’s provisions on budgetary surveillance.

The Regulation

The Regulation would establish a common budgetary timeline (mid-term budgetary framework to be published by 15^th April, draft budget laws published by 15^th October, and budget laws should be adopted by 31^st December), and require the creation of national independent fiscal councils for monitoring the implementation of national fiscal rules for achieving budget balance.

For budget monitoring, the relevant information is (simplified list taken from Article 5(3)):

(a)    The targeted budget balance as a percentage of GDP;

(b)   The projections at unchanged policies for expenditure and revenue as a percentage of GDP;

(c)    Targeted expenditure and revenue as a percentage of GDP;

(d)   A detailed description of measures to be included in the budget to bridge the gap between the targets in (b) and (c);

(e)   The main assumptions about expected economic developments and important economic variables, based on independent macroeconomic growth forecast;

(f)     Any additional indications on how recommendations to the Member State will be met.

The Commission will give its opinion on the draft budgetary laws by 30^th November, and national parliaments can require a Commission presentation to them. There will also be an overall assessment for the Eurozone.

When a Member State is under the excessive deficit procedure it falls under closer budgetary scrutiny, with regular reports to the Commission on the execution of the budget on the general government and sub-sector levels. Under Article 7(6), the Commission can require a Member State to carry out and report on a comprehensive independent audit of its accounts and provide additional information on its progress on the excessive deficit. The Regulation would increase the Commission’s power in monitoring Member States’ budgets and involvement in budgets where there is an excessive deficit procedure in force.

European Parliament Report.

For the Economic and Monetary Affairs Committee, Elisa Ferreira (S&D) drafted the report for the Parliament’s response at first reading. The report was endorsed in Committee by 18 to 12, with 14 abstentions, and in plenary by 501 to 138, with 36 abstentions. The report was endorsed by an EPP-S&D-ALDE-Greens/EFA coalition.

The report submits 81 amendments that will be the Parliament’s starting negotiating point with the Member States in the Council. The main changes are:

- Greater reference to employment and social partners to be added to the recitals;

- It would add (non-binding) calls for a Financial Transaction Tax and a Common Consolidated Corporate Tax Base to the recitals;

- Specifies that the Regulation does not affect wage formation or collective agreements;

- Would define “particularly serious not compliance” as a deviation of 1% GDP in one year or an average of 0.5% GDP each year for two years from the budgetary objective if there are no exceptional circumstances;

- Gives some more flexibility with the deadlines;

- “Expected economic developments” will include an estimation of the assumed macroeconomic multiplier effects (so stimulus packages can be taken into account);

- Specifies that the Commission’s power to specify content of draft budgetary plans is through delegated acts, which brings it under closer control and scrutiny by the Parliament and Council;

- The European Parliament can also require that the Commission present its budgetary plans to it and the relevant EP Committee, as well as the Eurogroup, will discuss the Commission’s opinion on national budgetary plans and the budgetary situation in the Eurozone. The Commission may update its opinions in the light of these discussions;

- Overall assessments of the Eurozone shall also include stress tests that provide “an indication of the risks to public finance sustainability in the event of adverse financial or budgetary developments.”

- The requirement of Member states to report debt issuance to the Commission and the Eurogroup will be included;

- The Commission will be required to present a report on a roadmap towards Eurozone Stability bonds and present a proposal for a Eurozone sustainable growth instrument aiming at mobilising approx. 1% GDP per year over 10 years, including an increase in EIB capital and project bonds, to be invested in European infrastructure, science and technology;

- Eurozone Member States may agree an annual coordinated public debt issuance framework (this is for a future proposal, however);

- A European Redemption Fund shall be established based on joint liability and strict conditionality for 25 years (after which it will be wound up), covering debt over 60% GDP of non-assistance programme Eurozone Member States on a roll-over period of 5 years. There will also be a fiscal consolidation strategy and a structural reform agenda. The ERF’s day-to-day management will be under the Commission following a regulation by the EP and Council;

- Under the excessive deficit procedure, the relevant Member State will present its national plan, including areas of European Added Value, such as EIB credit lines;

- The Commission shall present a report, and possibly a proposal, on a European Debt Authority to the Parliament and Council that would be responsible for managing and coordinating all issues relating to the annual debt issuance plan of the Member States.

Thoughts

The report is clearly very ambitious, particularly inserting the creation of a European Redemption Fund, likely as a way of aiding Italy and Spain. The Parliament is keen to introduce a greater scope of variables to the process and to highlight the importance of social partners, respect for wages and collective agreements, and European solidarity through national plans indicating EIB and other economic help. It’s also clear that the Parliament is using this opportunity to push its ideas on to the agenda and to overcome being overshadowed by the European Council summitry that’s dominated the past 2-3 years of crisis. The Parliament has also tried to introduce more democratic and parliamentary controls over the Commission’s power, especially in ensuring the oversight of its delegated powers by the Parliament and Council. By reserving a right to demand Commission reports and the right of debate, the Parliament tried to ensure that all these plans are open to political debate and discussion.

Still, the need for the Parliament to cram requirements for further reports and debates on further aspects of Eurozone reform highlights how one-dimensional the current “fiscal union” is. The more radical elements are sure to be thrown out or heavily watered down – I don’t expect to see the redemption fund survive negotiations with the Council – but there are some grounded ideas for improving the content of reporting, planning, and of improving democratic oversight.

Hup Hollande Hup!

Sunday was a big election day for Europe. France elected its first Socialist President in 17 years with Francois Hollande, and the Greek electorate looks like it has given the two main parties a huge kicking.

Hollande will add to the pressure for a change in direction in the EU when it comes to austerity, and Hollande has already set himself up to be the leader of counter-austerity Europe. Though he will undoubtedly clash with Merkel, in the end they’re likely to muddle through unless Merkel sticks to an absolutist vision of austerity Europe. With austerity failing in practical terms – S&P used its report on Spain to critique the front-loaded austerity programme and the EU’s general policy – and countries like Italy voicing the need for a better approach to growth (while endorsing austerity in general), the political winds look like they will shift the continent leftwards to a degree (Europe is still dominated by the centre-right EPP political family).

Within Germany there is more debate on Eurobonds, etc, than I think outside commentators give credit for, though there is still a lack of debate. The opposition Social Democrats and Greens are more enthusiastic on Eurobonds and deeper fiscal integration, but the rise of the Pirate Party makes the German political scene more unpredictable. Germany has been caught up in a lot of comment on the rise of Die Piraten: what exactly are they about? Do they have the kind of leadership structure or policy programme that makes them a credible force? If they remain so unstructured – and wedded to “fluid democracy” (crudely put, where policy is crafted online by activists and then represented in parliament by Pirate representatives) – could they ever be capable of coalition with the other parties?

Sunday brought an election in the Northern German Land of Schleswig-Holstein, where the Pirate Party gained 8.3%, and there was little between the Christian Democrats (CDU) and the Social Democrats (SPD), even if the centre-left coalition is ahead - the rival Christian Democrats-Liberal bloc trial the Social Democratic-Green bloc 39% to 43.4%. It now looks like the Social Democrats will lead a coalition with the Greens and the Danish minority party SSW (which is not subject to the same 5% threshold as the other parties), that may have a majority of just 1. The Liberal FDP is unlikely to do as well at the federal level as in Schleswig-Holstein (honestly, after the bad year they’ve had, being kicked out of one state parliament after another, their 8.2% vote in S-H is a huge victory), but it just demonstrates how the sudden rise of the Pirates could splinter the political field further.

Muddling along will likely continue in Europe, except now the hope is that we’ll start to see a direction with more solidarity develop. The biggest shock to the system will be the Greek elections, where it could be very difficult indeed to form the next government. With the far-right getting into parliament and the collapse in the vote for the two main parties, political instability is going to dog Greece and the rest of Europe for a long time to come. France and Germany can’t afford to squabble for too long: Greece will be bursting back on to the agenda before we know it.

And the referendum in Ireland? I don’t know how much Hollande’s election will make a difference until – or if – he makes it clear if he is seeking another treaty to supplement the Fiscal Stability Treaty or a renegotiation. From what he’s said it looks like he wants an extra treaty – it’ll be easier to get this, as it will be easier for Merkel to agree to this without losing face – and Ireland might be in a difficult position if it rejects the treaty to push a joint cause with Hollande... and then have to re-run the referendum in order to get the second treaty too (though it should then be clear that enough’s changed to have a re-run at least). The vote’s not until the end of May, so there’s still some time to read the signals from the Élysée.

Irish General Election 2011: Some early thoughts

The first day of counting is over (Ireland uses the PR-STV system in its general elections), and at the time of writing the results for the 166 Dáil seats stand at: Fine Gael 68; Labour 35; Fianna Fáil 17; Sinn Féin 13; ULA 4; Others 13, so 147/166 seats have been filled. The election will have a big Irish political impact and an uncertain European impact, and it's unclear how this will work out.


In Irish Politics.

It looks pretty certain that the next government will be a Fine Gael-Labour coalition (in continental terms a Grand Coalition). It will be Labour's best result because they will now be the second biggest party in the Dáil after having been the third party for their entire history. There were concerns that their manifestos are too different on major economic issues to work together effectively, but I'm sure there are well established personal links between them and there will be large sections of the aging Labour front bench who will be eager to get into government at last.

For Fianna Fáil it's a complete disaster: only around 20 seats is an unthinkable result for the natural party of government. Their support base is aging and they have become "transfer toxic", so that they rarely won the last seat in any constituency, and there are few constituencies with more than one FF TD. It is a low support base to build form, and they will have trouble trying to distinguish themselves ideologically as they were always a broad-based, Gaulist-type movement whose main ideological componant was Irish Republicanism. In this regard Sinn Féin will be a threat since it can claim its ground on Republicanism and organises in Northern Ireland and in the Republic. FF may have recognised this threat and might be aiming to counter it by organising in Northern Ireland itself. It will be hard for FF to regain the Republican image after their government saw the IMF-EU bail-out deal, however.

A big boost to Fianna Fáil would be leading the opposition, which will give them a chance to feed on the anger of the electorate at the incoming government as it detoxifies. They could face challenges on this on two fronts.

Sinn Féin has done really well, and the party has a strong tradition for good constituency work that translates into votes, and they have more than doubled their representation this time around - a clear sign that all their base-building in the Republic is paying off. They wouldn't get as many seats as FF, but there is a danger for FF that they will try to form a technical group in the Dáil with the ULA and perhaps other left-wing independents to become the biggest opposition party. So it could be SF that robs FF of the "oxygen of publicity". SF will be aiming next time around to eat into Labour's support as the biggest left-wing opposition party. Though SF has become more transfer-friendly, if the economy does pick up I wonder if the rhetoric of opposition - and SF's plans seem quite unrealistic to me - will be able to attract even more votes, or if SF will need to moderate and broad its appeal? If they become more moderate the ULA (United Left Alliance) will be breathing down their neck to fill the protest vote gap.

There are some right-wing independents in the Dáil, most notably Shane Ross, who is reported to be trying to form a like-minded technical group of 8 TDs who could support a FG government and keep Labour out of power. FG is unlikely to take this option as ideological independents would be high maintenance, but it would be tempting in order to retain cabinet posts. In any case it will lessen Labour's bargaining hand.

FG's big election win means that it will be hard for Labour to influence government policy. The question is, should it try to influence it to benefit low and middle income families (its target voters), or become the leaders of the opposition and make Irish politics truly left-right? It sounds like Labour wants to be in government (a lot of rhetoric on government stability and a broad based government to deal with the crisis), but it has to be questioned whether it can influence government enough for it to be worth it. Labour is strong in Leinster and Munster, but very weak in the rest of the country, where SF has won seats. They would need to be wary of letting SF grow while it is in government, or it could fail to break out of the role of "the other party" of Irish politics. Both the alternative opposition allignments are threats to FF.


In European Politics.

There will have to be a renegotiation of the bail-out agreement, as Ireland simply cannot bear the burden of all the private debt in the system. Much of this private debt is made up of loans from German and British and other European banks, which raises the question of why the pain of dealing with bad lending should be concentrated in Ireland. Despite the moral arguments, any action has to be European-wide to be credible: we need money to fund the state and public services, and washing the debt back into the European system would restart the debt crisis which would be bad for the recovering Irish export industry without solving our own public funding crisis.

The problem is that strong negotiations need to be tempered by a clear vision and arguments for the compromises and changes that Irish, German, Dutch, etc, etc, people will have to make. For Eurobonds and bondholder burdening, we would be asking other people to take up the pain and burdens we have, and we need to sell that to them. Internally, we need to sell the pooling of sovereignty involved in Eurobonds and other forms of fiscal harmonisation - after all, we might be called on in the future to bail out other countries in the Eurozone, and we would want to make that as unlikely to happen as possible.

Compromise will be the other of the day, so the Irish government and the rest of the European Council needs to be exceptional in delivering a workable solution to the debt crisis, including economic governance, and at the same time sell it to the people - because all of this will need Treaty change.

If there is an agreement on the future shape of the Eurozone, then there will be a referendum in Ireland. What compromise would be realistic and acceptable to Ireland, and the other Eurozone members?

SPD: EU must be more cohesive

The SPD (the German Social-Democratic Party, the main opposition party at the federal level) has called for more cohesion in Europe, speaking about a quantum leap towards political union (though it doesn't seem to be advocating that just yet):

"The SPD leader has said the euro-zone crisis had proven the need for a dynamic European social democracy with a clear focus on future progress.

The only sensible way out of the crisis, he said, was to impose more EU regulation and to sideline the “congenital defect” of the euro: the lack of a common economic and financial policy.

“We need a quantum leap on the way to political union in Europe,” wrote Mr Gabriel in the Frankfurter Allgemeine daily yesterday.

“The first step is an economic-political co-ordination and co-operation that earns the name. Particularly for us Germans, who feel the tremors in world trade, this development is finally evident. For that reason we have to be the motor of this progress in the EU.”

Europe’s social democratic parties are best-placed to bring about this change, Mr Gabriel said, because they are historically concerned with “sharing fairly the economic fruits of progress”."

The SPD has decided to support Eurobonds (Tagesschau):

"Anders als die Bundesregierung macht sich die SPD für gemeinsame europäische Anleihen - so genannte Euro-Bonds - stark, um die Schuldenkrise in der Euro-Zone einzudämmen. Den Ländern der Euro-Zone könne damit ermöglicht werden, sich bis zur Maastricht-Schuldengrenze zu refinanzieren.

[Own Translation: Unlike the Federal Government, the SPD is for common European bonds - so-called Eurobonds - in order to dampen the Eurozone crisis. The Eurozone countries would then be enabled to refinance to the Maastricht debt limit.]"

Now that the crisis is at Portugal's door, and it looks like there will be another bail out soon, it's increasingly clear that the current mechanism not only doesn't solve any of the underlying problems (after all, the facility is just another lender), but it has failed to sufficiently restore market confidence to prevent the crisis spreading. The PES also back Eurobonds, and there are voices in France's UMP party calling for Sarkozy to drop France's resistance to the idea. With an election coming up in Ireland, it's a question we should be considering more seriously.

The Stability Fund has given the Eurozone some breathing space to decide what to do next. Hopefully these voices will encourage real consideration of where to go from here - otherwise we might find ourselves with an empty piggy bank, and nowhere to go.

Conversations with ourselves

Last week there was a PES (Party of European Socialists [centre-left]) conference in Warsaw, not that it made much media impact. Even EUobserver, which is dedicated to EU news and politics, was so taken up by the Wikileaks story that it simply didn't mention it. Centre-left party leaders from the UK and France did not turn up. EurActiv has an article on the Conference, reporting that the PES have now set up a working group to figure out how a Commission President candidate will be chosen for the 2014 election - but it was the lack of interest that sticks with you.

In some ways this is strange, particularly in Ireland. The Irish Labour Party have said that they will not be bound by the IMF/EU-Ireland bail-out agreement, and it has denounced the conservative consensus in Ireland and in Europe. The stress on investment and growth (though the Labour party would also cut spending and raise taxes to reduce the deficit), is quite similar to the speeches being made at the conference. Growth and jobs; the two words were repeated again and again in Warsaw, with continuous reference to the dominance of the centre-right EPP (European People's Party [centre-right]) in the EP, Commission and Council, and their philosophy of austerity, in contrast to what Greek PM Papandreou termed PES "responsibility".


PES leader Poul Nyrup Rasmussen:

Plenary speeches : Poul Nyrup Rasmussen from PES_Party of European Socialists on Vimeo.

Greek PM George Papandreou:






The two parties who have a chance of winning the next election and electing their leader Taoiseach (Prime Minister), Labour (PES) and Fine Gael (EPP) are pretty much in line with their pan-European parties' philosophies (though it's more doubtful when it comes to the EU's own resources and economic governance). Given the talk of a loss of sovereignty and the control the EU now has over our economy, stressing the influence and links with influential blocs within the EU could have some bonuses, but this possibility isn't explored because that's not how the Europarties are seen by the national parties, and that's not how the EU is represented. It's surprising how much the Commission is represented as purely technocratic, and that Olli Rehn's insistence that the Commission does not "involve" itself in domestic politics passes without real comment. The EU does respond to shifts between the right and the left, as can be seen by the shift in the Commission's composition ever rightwards over the last 10 years as the EPP have gained ground in the Council and Parliament.

The point is that there is the room and the place for political debate and discussion. At the moment a lot of the crisis politics has fallen by default to the European Council - the leaders of the Member States - which favours the voices of those who can shout loudest, and unfortuneately this means that any debate that is going on about the Eurozone is taking place in segmented groups, rather than allowing for an exchange of views across borders. The Irish press, and other European media, can complain that Germany is not being sensitive to the situation of the rest of the Eurozone and doesn't appreciate how much the Euro benefits it, but how useful is that if there's no debate between these different ideas and perceptions in each country? Who is trying to persuade the German public of certain right/left-wing policies that are necessary for the weaker Eurozone states, and who is arguing of the necessity of the largely German and Dutch-supported policies to strengthen economic governance in the weaker Eurozone states?

If we just express outrage at the bail-outs and the running of the Eurozone from different perspectives within our constituencies, then we've little hope of coming to a workable agreement that everyone can at least understand, rather than having another crisis measure hastily agreed at another European Council summit.

[EurActive] "...the centre-left wants to introduce a financial transaction tax of 0,05%, with the revenues going to fight against poverty and promotion of green growth.

Second, the PES wants to introduce an Employment and Social Progress Pact to contrast with the Stability and Growth Pact setting out limits on public debt and deficits for euro zone governments. Instead of strict fiscal discipline, the socialist pact would prioritise job creation, leaving behind the Conservative economic approach based on "punishment and sanctions," said Poul Nyrup Rasmussen, PES President.

Other measures include the introduction of Eurobonds that would add to the EU solidarity budget and setting up a European Debt Agency that would help EU tackle debt problems."

Surely competing ideas like these need to be aired and well discussed?

Where are the MEPs? I have not seen an MEP on Irish TV talking about how the EU should approach these matters. Perhaps nobody in the Irish media thought to grill them on what was going on in the EU, or to ask them what could or should be done differently. If we do not try and influence the EU through our MEPs and their parties, then we are missing an opportunity to exert political pressure and to force "Brussels" to respond. With billions being loaned and transferred across the EU and Treaty change in the air to secure the Eurozone, there is clearly a lot at stake - we should be contacting MPs and MEPs, holding public meetings and TV debates where the different Europarties and national parties debate their different visions of the Eurozone. Force them to take positions; to make the case for their ideas. If MEPs from different Member States joined in, then the different viewpoints of other parties in different constituencies could be discussed and understood.

Experience shows that it's hard to interest people in MEPs and European issues, and it would be undoubtedly difficult to set up public meetings and debates consistency across the Eurozone, but we cannot and should not leave the sole political debate behind the closed doors of the European Council, and we are wasting are time carping ineffectively about the positions of other countries, essentially, behind their backs. If we want to make our political voices heard, we should at least try to use the system we have to its full extent.

Will European bonds translate into Eurobonds?

There are, we are told, no plans to bail out Greece, which has come under a lot of pressure and scrutiny for its government debt. However there seems to be a general feeling that if it came to it, Greece would be bailed out: see the Irish Times and A Fistful of Euros. A few months ago, when the pressure was more focused on Ireland, I had the impression that, in the end, Merkel would relent and accept the need to bail out Ireland to prevent the Euro from being damaged. In terms of the Euro, any state is probably too big to fail, and so there probably needs to be some mechanism for supporting Eurozone states.

If Greece is bailed out by the EU, then there’ll be a strong precedent and expectation to do it again – and it could be called to do so again, as AFoE seems to suggest when you consider its articles on Spain. Of course, it may not come to a bail out, but already the EU is setting precedents through checking the Greek government’s figures and offering advice on the economy. Granted, the EU isn’t yet setting fiscal policy or writing Athens cheques, but it does show a growing need for greater formal economic co-ordination – and a certain willingness to do something about it.

There have been calls for more co-ordination in tax (which would be resisted by Ireland, among many member states).

Also, the Eurobond issue has been raised again, as it was when Ireland was the focus, and with the S&D group coming out in favour of its creation. It would make borrowing cheaper for countries like Ireland and Greece, but more expensive for countries in a better position, which in political terms looms large as Germany. Germany rejected the idea back when Ireland was the issue, and Berlin remains an obstacle to the idea. But if idea proves resilient and keeps coming back – as it probably will during what will likely be a long recession, and particularly if Greece does need to be bailed out – it could happen. Is it a necessary element of a stronger Eurozone?

The S&D group is also advocating the EU adoption of Obama-like plans for the banking sector. Given the UK’s unease with the prospect of financial regulation at a European level in the guise of a simple oversight system, and the dominance of the right generally, it isn’t really a serious prospect. Except... It is interesting that in the UK the Conservatives have, strangely, enthusiastically adopted Obama’s ideas and David Cameron has called on the Prime Minister to clearly come out publicly in favour as well. I doubt they adopt the same position in the EP.

Could Gordon Brown turn around and say, “Why, yes, of course we support such a plan – and we’re part of an EU-spanning political party that advocates it too. Given the international value of banking, and the single market, it would make sense to have common rules on the matter – and we’re the only party in the UK that has the political clout in Europe to make it happen.”? Well... no. Besides Britain’s euroscepticism and the government’s continued awe of the City, it would be too risky to support it at a European level because the S&D are in opposition, so there’s no guarantee that it would pass in the EP, never mind in the Council and Commission; the Commission, which would need to introduce any draft legislation on the matter, may not back the idea; it could end up playing as a victory for the French and a result of their “winning” an economic portfolio, even if it was originally Obama’s idea, etc.
Pity: the thought of Labour turning its European-dimension to its advantage on an issue (to show coherence and effectiveness on several levels compared with the Tories) is a nice thought, but still a fantasy.

Will European bonds translate into more co-ordinated action and a more structured way of working together in the future? Necessity might demand it, but there may not be the supply of political will.