The next round of economic governance legislation must be geared more towards growth and new European Commission powers to vet Eurozone countries' budgets should be better democratically controlled, MEPs said on Wednesday when adopting Parliament's position on the so-called "two pack". The biggest changes to the Commission proposal are a new chapter on coordinating debt issuance, including the partial pooling of Eurozone debt, and legal protection for countries about to default.
The votes come after the Economic and Monetary Affairs Committee approved the two texts, but with majorities deemed too slim to provide a clear mandate for negotiating with Member States. Now, with a plenary mandate, Parliament's negotiators will enter into talks with them in order to reach a deal on the legislation.
Jean-Paul Gauzès (EPP, FR), rapporteur for the rules dealing with countries in significant financial trouble, said, "with such rules in place two years ago we would have avoided the problems currently experienced by some countries since early and clear actions would have been taken".
Elisa Ferreira (S&D, PT), rapporteur on the text which steps up budgetary reporting requirements for all Eurozone countries, argued that the legislation must respond to a broader political context. "Fiscal discipline cannot be the Alpha and Omega of our strategy. We need to rebalance our short term objectives to also address growth and the vicious spiral of high debt-financing interest rates", she said.
Redemption fund, Eurobonds and infrastructure investment
Parliament's position adds a very direct growth dimension to the package and provides some immediate fix solutions to reduce debts. Most importantly, a European Debt Redemption Fund would be set up to group together all Eurozone members' debt which exceeds 60% of their GDP. Currently amounting to around €2.3 trillion, this debt would then be repaid over 25 years and at a lower average interest rate. This would provide breathing space for countries to carry out difficult structural reforms and would also help to break the spiral of high interest rates, higher debt, and less growth.
As to longer-term solutions, one month after the legislation's entry into force, the Commission would also be required to present a roadmap for introducing Eurobonds and a proposal for a growth instrument which would mobilise 1% of GDP per year, or around €100 billion, over ten years, for infrastructure investments.
More Commission oversight but no blank cheque
The Commission's exercise of its increased powers would be monitored more closely by Member States and the European Parliament, so as to ensure oversight, accountability and legitimacy. To this end, the extra powers would need to be renewed every three years and Parliament or the Council would be able to revoke them.
The text dealing with exceptional Commission powers in countries facing bankruptcy nonetheless places the Commission in a stronger position than it would have been under its own initial proposals, notably by providing for greater use of the "reversed qualified majority" rule for votes in the Council.
For example, this rule would apply when the Commission recommends corrective measures to be taken by a country or when it requires new debt reduction plans to be submitted. Such decisions would be considered adopted unless the Council rejected them outright.
Growth as the ultimate goal
In line with shifting sentiment, both texts stress the need to ensure that fiscal monitoring does not hamper growth. The Commission's country-by-country budget assessments would therefore need to be more comprehensive, to ensure that budget cuts are not made at the cost of killing off investments with growth potential.
Moreover, for countries being asked to make significant cuts, these efforts must not harm investments in education and healthcare, particularly in countries in severe financial difficulty. The Commission would also be required to look at spillover effects, to be sure that a country's difficulties do not also stem for bad policy elsewhere in the Eurozone.
Member States would also be required to detail which of their investments has growth and jobs potential, and deficit reduction timetables would be applied more flexibly in exceptional circumstances or in a severe economic downturn.
Finally, the texts also entrench the rights of social partners and civil society to express their views on Commission recommendations and be better included in policy formulation.
Legal protection from bankruptcy
A new rule would empower the Commission to place a country on the verge of default under legal protection, to give it more clarity, stability and predictability in tackling its problems. Once under such protection, a country could not be declared to have defaulted, its creditors would need to make themselves known to the Commission within two months, and loan interest rates would be frozen.
The Gauzès resolution was adopted with 471 votes in favour, 97 against and 78 abstentions, and the Ferreira one with 501 votes in favour, 138 against and 36 abstentions.