In a major step to foster economic stability, restore confidence and prevent future crises in the euro area and the EU, the Council adopted a package of six new legislative acts. The package constitutes the single, most important overhaul of European economic governance since the launch of the European Monetary Union (EMU) over ten years ago.
The legislation will come into force by end-2011 and focuses on strengthening budgetary surveillance on the one hand and preventing and addressing macroeconomic imbalances on the other.
The package establishes a stronger framework conducive to responsible public finances. It includes an important reorientation of the Stability and Growth Pact (SGP) putting much more stress on debt reduction. Member States will be held accountable not only for avoiding excessive deficits but also for reducing their public debt at a satisfactory pace. For the euro area, the new legislation introduces new financial sanctions (deposits and fines) of up to 0.2% of GDP for Member States that do not respect Council recommendations and decisions. These sanctions are applied from an early stage and their enforcement is strengthened by the expanded use of 'reverse qualified majority' voting. This implies that if the Commission makes a recommendation or a proposal to the Council, it is considered adopted unless a qualified majority of Member States vote against it.
The package also establishes a mechanism to penalise statistical misrepresentation of debt and deficit data for SGP purposes, which may involve fines as high as 0.2% of GDP.
A new Directive on national budgetary frameworks sets minimum requirements for national fiscal governance such as accounting systems, statistics, forecasting practices, fiscal rules, budgetary procedures and fiscal relations with local and regional authorities. More uniform standards across the EU will facilitate the budgets' sustainability assessments by peers and EU institutions.
As another important new element, the package includes provisions to prevent and correct macroeconomic imbalances such as asset bubbles or competitiveness divergences. The Commission will monitor a scoreboard of economic and financial indicators and will carry out in-depth country analyses. Where necessary, it will issue country-specific recommendations. If an imbalance is perceived to be of a serious nature, the Member State concerned will be placed in a so-called "excessive imbalance procedure" that would lead to the issuance of detailed policy recommendations and regular reporting from the Member State to the Council of Economy and Finance Ministers. As for the SGP, the legislation includes the option to enforce that necessary action is taken through financial sanctions.
With the adoption of the package, thefoundations are laid for a larger degree of coordinated fiscal policy respecting the rules of sustainability and responsibility. The common currency will henceforth be underpinned by a sound set of fiscal rules, which will benefit both the euro-area members and those outside it.