Legislators back tougher rules to police EU countries' debt
MEPs yesterday night (19 April) gave their backing to a package of reforms beefing up the EU's powers to police countries' debts in a bid to tackle the aftermath of the sovereign debt crisis.
After the outbreak of the Greek debt crisis, which led to an unprecedented speculative attack on the euro, EU finance ministers agreed in May to establish a rescue mechanism worth €750 billion to protect the euro from collapsing under the weight of debt accumulated by EU countries.
On 12 May, the European Commission presented its first proposals to strengthen the Stability and Growth Pact, which guarantees the financial stability of the euro zone and the EU as a whole.
Herman Van Rompuy's 'Task Force on Economic Governance' submitted its recommendations on 21 October 2010.
EU leaders reached a difficult agreement on 25 March on the funding structure of the euro zone's new permanent bailout facility, which is due to enter into force after 2013, after Germany sought last-minute changes needed to secure political backing in Berlin.
Last night the European Parliament's economics committee fought its way through 2,000 amendments to new rules on economic governance, originally authored by the European Commission and a task-force set up by Council President Herman Van Rompuy.
The six-pack of economic reforms aims to strengthen the EU's Stability and Growth Pact and to prevent the kinds of budget gaps currently sinking the euro.
The committee just about managed to secure a majority. The legislature's second largest party, the Social Democrats, and the Greens refused to back many key reforms.
Though disagreements remain, MEPs dealt a blow to the EU's member states by voting to considerably dilute the Council's decision-making powers on tackling countries' debt problems.
If the Parliament gets its way during forthcoming negotiations with the Council, then EU countries will have to answer to the European Commission on escalating debt worries and therefore be less capable of political horsetrading to avoid sanctions.
In 2003, Germany and France broke the Stability and Growth Pact's rules by refusing to reduce their structural deficits, weakening the pact's credibility.
The Parliament's amendments aim to remedy the past mistakes by making sanctions on escalating debts more automatic. Member states would be sanctioned after a first warning and penalties can only be overruled with the backing of a majority of member states, that is a reverse qualified majority (QMV).
In addition to a 0.1% fine for failing to comply with the Commission's plans to put debts on a downward path, the Parliament wishes to add a 0.5% fine for countries caught fiddling with their debt figures, like Greece was in early 2010.
On debt reduction, those with debts above 60% of GDP would need to reduce their debts by an average of 5% per year over a three-year period, in comparison to the Commission's proposal for a fixed decrease of 5% per year over a three-year period.
But MEPs will have a tough time getting their own way as member states recently voted down reverse QMV. In addition, negotiations with the Council, due to start on Wednesday, will be difficult without the backing of the Social Democrats and the Greens.
One of the six MEPs in charge of the reform package, Portuguese Socialist Elisa Ferreira, said she was disappointed by the outcome and that the Parliament should seek broader support in a full plenary vote before embarking on talks with the Council.
It is still too soon to know when a plenary vote might happen, a spokesperson from the economics committee, John Schranz, said last night. June is the current deadline for both the Council and the Parliament to forge an agreement.