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Commission 'seizes moment' in bid for 'EU economic governance'
Date 14/05/2010 11:24  Author webmaster  Hits 2699  Language Global

José Manuel Barroso at the press conference, 12.05.2010 (Photo: European Commission)'Never waste a good crisis', they say, and the EU Commission lost no time in proposing a 'remedy' to the current economic crisis.

In a 'Communication' [COM(2010)250] it released May 12 the Commission says the crisis has exposed the weaknesses in the European Monetary Union (EMU) and offers a solution that would enable the EU to take effective control of member states' economies through EU-level coordination and intervention.

The plan on "reinforcing economic governance" proposes an empowered "surveillance mechanism" led by EU bureaucrats, that would 'coordinate' the economic and fiscal policies of member states and conduct "economic governance" over national budgets.

Commission president José Manuel Barroso summed it up during the press conference in Brussels last Wednesday:

"Europe has been dealing with [the economic crisis] with urgency. We must show we are serious about more fundamental reforms... We must now get to the root of the problems. At times like this, Europe can make serious progress.

"Today, the Commission is seizing the moment to reinforce the economic policy coordination and fiscal discipline in Europe.

"We propose a more upstream surveillance of national budgets."

The plan to impose "EU economic governance"

The Communication blames the failure of the functioning of the EMU on the 'lack' of an effective 'surveillance mechanism' against breaches of the Stability and Growth Pact, which restricts budget deficits to not more than 3% of GDP,  and national debt to less than 60% of GDP.

This lack of compliance, the Commission claims, has resulted in public debts forecasts for 2011 of  84% of GDP (88% in the eurozone), and a deficit of 7% of GDP for 2010 - no doubt reflecting the dismal failure of the previous 10-year economic plan, the '2010 Lisbon Agenda'.

This situation is remedied by "reinforcing compliance" and applying "deeper fiscal policy coordination," the Commission claims.

But there are "other macroeconomic and financial imbalances," which "aggravated the vulnerability of the euro-area economy in particular." These are "persistent competitiveness divergences and macroeconomic imbalances within the euro area," causing "a risk to the functioning of the EMU."

In other words, the functioning of the EMU is threatened by the economic success of some member states as with the failure of others.

According to the plan, the solution involves the "coordination at EU level" of national budgets to help achieve the "ambitious aims" set out in the EU's 10-year economic plan - 'Europe 2020'.

But before coordination comes surveillance.

EU surveillance mechanism

One major aim of the Commission's plan is "towards broader surveillance of intra-euro area macroeconomic and competitiveness developments," in other words, the detection and correction of member states' economic policies that diverge from the EU's 10-year plan.

The Commission recalls its current 10-year economic plan in Soviet-inspired Eurospeak:

"The EU's comprehensive Europe 2020 strategy for growth and jobs puts the focus on macro-financial and structural imbalances. Europe 2020 sets out an ambitious and comprehensive strategy towards smart sustainable and inclusive growth for the EU economy."

This finely-calculated piece of central planning is undermined by "the accumulation of large and persistent macroeconomic imbalances among euro-area Member States," which is Eurospeak for the contrasts occurring between the market economies of diverse countries pursuing diverse industries and related economic and fiscal policies.

In order to avoid such imbalances, the Commission claims, it is "important to deepen the analysis and expand economic surveillance beyond the budgetary dimension to address other macroeconomic imbalances, including competitiveness developments and underlying structural challenges."

This broad stroke of interventionism implies a lot of faith in the EU central planners' capacity to detect and fix economic 'imbalances' across the eurozone's 'free' market economies in the name of the collectivist EU project.

The Commission adds that "preventive and corrective actions are potentially needed in a wide range of policy areas to effectively influence the macroeconomic imbalances and their underlying structural causes."  Note that the Commission is referring to corrective action related to economic policies, not merely to excessive deficits.

"Unlike in the correction of excessive deficits," it goes on, "economic policies tend to have only an indirect and lagged impact on the development of external imbalances. Therefore, depending on the specific challenges of the economy concerned, policy recommendations could address both the revenue and expenditure side of fiscal policy"

This means that EU central planners would be able to intervene in an individual country's taxation policy and force its citizens to pay more taxes, or do whatever the EU bureaucrats believe is necessary to achieve the goals of the EU's 10-year economic plan and make 'macroeconomic imbalances' disappear.

"In this context, " the Commission goes on, "recommendations could address the functioning of labour, product and services markets in line with the broad economic policy and employment guidelines," thereby stepping from macroeconomic to microeconomic intervention.

'Recommendations' in this context could become notices of enforcement orders, since if ignored sanctions and 'corrective measures' ensue.

Applying Art. 136 (TFEU) of the Lisbon treaty, the Commission also aims to upgrade the Eurogroup peer review of macroeconomic imbalances "into a structured surveillance framework for euro-area Member States," which would assist the Commission in its assessment of macroeconomic imbalances .

The proposal adds that "this framework will imply deeper surveillance, more demanding policy co-ordination and stronger follow-up than envisaged under Europe 2020 for all EU member States. As with the EU's fiscal framework, which also applies to all EU Member States, more stringent rules would apply to euro area Member States."

Since this surveillance and policy coordination applies to all member states, countries outside the eurozone, like the UK, would have their fiscal and economic policies aligned with that of the eurozone.

Enforcing compliance

One way the Commission plans to enforce compliance is through "the establishment of a European Semester for economic policy coordination," starting from next year.

According to the Commission's plan, the "European Semester should encapsulate the surveillance cycle of budgetary and structural policies. It would start early in the year with a horizontal review under which the European Council, based on analytical input from the Commission, would identify the main economic challenges facing the EU and the euro area and give strategic guidance on policies."

The Commission recalls that the 'Europe 2020' 10-year plan provided a way towards synchronising "the assessment of fiscal and structural policies of EU Member States" by "achieving a more integrated surveillance of economic policies."

The Commission claims this is where "an integrated surveillance cycle under a European Semester" would come in handy.  This way, the Commission believes, "member states would benefit from early coordination at European level as they prepare their national stability and convergence programmes including their national budgets and national reform programmes."

This means that before working out their budget-related policies, national governments would need to abide by the guidelines set by the 'European Semester', governed by EU bureaucrats.

The Commission also claims that a "system of early peer-review of national budgets" would help "detect inconsistencies and emerging imbalances." In other words, national budgets would come under the scrutiny of finance officials of other member states.

It also calls for Eurostat to be empowered with "audit[ing] national statistics in line with recent Commission proposals," so as to detect "inaccuracies" and perhaps prevent cheating at the 'collective farm'.

"Prevention is more effective than correction," the Commission points out and "the formulation of more timely country-specific recommendations would benefit all aspects of surveillance - fiscal, macro-financial and structural."

According to the Commission, "the competitiveness gap reached an all-time high just before the crisis," so the strengthening of the "preventive dimension of budgetary surveillance must be an integral part of closer coordination of fiscal policy."

The core of preventive work under the Pact, the Commission adds, is the "preparation and assessment of Stability and Convergence Programmes forms," which are compiled by member states and submitted to be assessed by the Commission and the ECOFIN Council (foreign ministers of member states). According to the Commission, the scrutiny of these forms must be increased to avert crises. It is also suggested that EU bureaucrats are given "teeth [that] will strengthen [the procedure's] effectiveness and impact."

Sanctions may include the "possibility of imposing interest-bearing deposits in case of inadequate fiscal policies when Member States make insufficient progress towards their budgetary Medium-Term-Objectives," which means member states could be forced to raise revenue and deposit it in a bank account.

The Commission calls for the speeding up of the Excessive Deficit Procedure (EDP), which is the corrective aspect of the Stability and Growth Pact. The EDP is the process by which the Commission, with the Council's participation, assesses national budgets for excessive deficits. If recommendations are ignored, the procedure may lead to sanctions, such as penalties and fines, and the member state in question may face tougher borrowing criteria from the European Investment Bank.

The Commission also calls for sanctions to include more widespread suspension of member states from the Cohesion fund.

Crisis management framework

Possibly expecting this central economic interventionism to yield perpetual economic crises, the Commission is proposing a "set of procedures for the provision of financial support to euro-area Member States in serious financial distress" in order "to preserve the financial stability of the euro area in the medium and long term."

The plan recalls the ECOFIN meeting of May 9, and the establishment of a "European stabilisation mechanism" as proposed by the Commission, with an overall financial support capacity of €500 billion (and an additional €250 through the IMF) - all to materialise out of thin air, it seems.

It underlined the "strong commitment" by ECOFIN towards "accelerated fiscal consolidation," adding that "lessons should be drawn and steps taken to strengthen the EU's system of economic governance for the future."

Confirming continuity and more of the same, the Commission points out that "financial assistance should be provided in the form of lending," which, the Communication hastily points out, "is not in contradiction with Article 125 TFEU" of the Lisbon treaty, which disallows Union liability for member states' debts.

Expecting no opposition, the Commission said "it will come forward with legislative proposals to implement these ideas in the coming months."

Commission's "next steps"

The Commission said it "will develop the reform proposals presented in this Communication, in line with its responsibilities under the Treaty."

Underlining the urgency of its 'remedies', the Commission "considers it important to make swift progress on the reform agenda laid out in this Communication: the present economic situation requires urgent action to implement the measures proposed to improve the economic governance of the EU and the euro area. The first European Semester should start with the beginning of 2011."

The Commission concludes that it  "stands ready to follow-up swiftly with legislative proposals, including amending the regulations underpinning the Stability and Growth Pact, to enhance the prevention and correction of macroeconomic imbalances within the euro area, and to establish a more permanent framework for crisis management."

Commission's Communication [COM(2010)250]

Commission's press release: Mastering economic interdependence: Commission proposes reinforced economic governance in the EU