56 Stability and Growth Pact
| (a)
(26508)
8192/05
COM(05)154
(b)
(26509)
8193/05
COM(05)155
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Draft Regulation amending Regulation (EC) No. 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
Draft Regulation amending Regulation (EC) No. 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure
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| Legal base | (a) Article 99(5) EC; co-decision; QMV
(b) Article 104(14) EC; consultation; unanimity
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| Documents originated | 20 April 2005
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| Deposited in Parliament | 17 May 2005
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| Department | HM Treasury |
| Basis of consideration | EM of 17 May 2005, SEM of 28 June 2005 and Minister's letter of 14 June 2005
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| Previous Committee Report | None
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| Discussed in Council | 13 June 2005
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| Committee's assessment | Politically important
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| Committee's decision | Cleared; but further information requested
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Background
56.1 The Stability and Growth Pact adopted by the Amsterdam European
Council in June 1997, consisting of the European Council's Resolution[200]
and Regulations (EC) Nos. 1466/97 and 1467/97, is designed to
support the requirements of Title VII, Chapter 1 (Economic Policy)
of the EC Treaty. Additionally, the Council agreed in 1998, and
revised in 2001, an Opinion on the content and format of stability
and convergence programmes. This "Code of Conduct" sets
out more detail on the interpretation of the Stability and Growth
Pact. The fiscal framework involved has two arms — multilateral
surveillance and the excessive deficit procedure.
56.2 The surveillance or preventative arm is provided by Regulation
(EC) No. 1466/97 on the surveillance of budgetary positions and
the surveillance and coordination of economic policies of Member
States. The Regulation requires Member States each to produce
a stability or convergence programme[201]
providing a "basis for price stability and for strong sustainable
growth conducive to employment creation". Programmes set
out the main assumptions about anticipated economic developments
and indicators, what changes in these might mean for the budgetary
and debt position and what budgetary and other economic policies
are to be undertaken to meet the programme's objectives, including
a "medium-term objective for the budgetary position of close
to balance or in surplus". Under the Regulation, the Council
of Economic and Finance Ministers (ECOFIN) issues an Opinion each
year on the stability or convergence programme of each Member
State. These Opinions, which are not binding on Member States,
are based on a recommendation from the Commission. The economic
content of the programmes is assessed with reference to the Commission's
current economic forecasts. If a Member State's programme is found
wanting, it may be invited by ECOFIN, in a Recommendation, to
make adjustments to its economic policies, though such Recommendations
are likewise not binding on Member States.
56.3 The Amsterdam European Council emphasised the obligation
of Member States to avoid excessive government deficits, defined
as the ratio of a planned or actual deficit to gross domestic
product (GDP) at market prices in excess of a "reference
value" of 3% or as the ratio of government debt to GDP at
market prices in excess of a reference value of 60%.[202]
It also endorsed action in cases of an excessive government deficit.
This is the corrective arm of the fiscal framework set out in
Regulation (EC) No. 1466/97. The procedure consists of Commission
reports followed by a stepped series of Council Recommendations
(the final two steps do not apply to non-members of the eurozone).
Failure to comply with the final stage of Recommendations allows
the Council to require publication of additional information by
the Member State concerned before issuing bonds and securities,
to invite the European Investment Bank to reconsider its lending
policy for the Member State concerned, to require a non-interest-bearing
deposit from the Member State concerned whilst its deficit remains
uncorrected, or to impose appropriate fines on the Member State
concerned.
56.4 Reforms to the Stability and Growth Pact agreed
by ECOFIN were endorsed by the European Council in March 2005.
The European Council said it had given "due consideration
to enhance the governance and the national ownership of the fiscal
framework, to strengthen the economic underpinnings and the effectiveness
of the Pact, both in its preventive and corrective arms, to safeguard
the sustainability of public finances in the long run, to promote
growth and to avoid imposing excessive burdens on future generations".
It specified a series of amendments to Regulations (EC) Nos. 1466/97
and 1467/97.
The documents
56.5 In response to the European Council's wishes
the Commission has presented two draft Regulations. The main effects
of that in document (a) would be to amend the surveillance Regulation
so as to allow medium-term budgetary objectives to "be differentiated
for individual Member States to take into account the diversity
of economic and budgetary positions and prospects", to allow
the planned path towards the medium-term budgetary objective to
be adjusted to take account of economic good and bad times and
to extend the deadlines for examination of stability and convergence
programmes.
56.6 The draft Regulation in document (b) would amend
the excessive deficit procedure Regulation in relation to:
· the
definition of "severe economic downturn" when the Commission
and Council are considering whether an excessive deficit is exceptional;
· the
definition and role of "other relevant factors" when
the Commission and Council are considering whether an excessive
deficit exists;
· extension
of the deadlines for taking action in the context of the excessive
deficit procedure; and
· in
certain circumstances, the revision and repetition of steps in
the excessive deficit procedure.
The Government's view
56.7 The Economic Secretary to the Treasury (Mr Ivan
Lewis) reminds us that the Government has consistently advocated
a prudent interpretation of the Stability and Growth Pact, taking
account of factors such debt sustainability, the economic cycle
and public investment specific to individual Member States. He
says the Government thinks the reforms to the Stability and Growth
Pact now agreed are right in placing a greater focus, first on
debt reduction and maintaining low debt, with flexibility for
low-debt countries such as the UK to invest in the provision of
public services, and secondly on the avoidance of pro-cyclical
policies, both when the economy is below trend and when it is
above trend.
56.8 In his letter the Minister tells us that, in
order to make progress as quickly as possible towards establishing
a clear legal base for the reforms endorsed by the European Council,
he decided that the Government should agree to the proposals at
the Council of 13 June 2005.
Conclusion
56.9 These moves to allow greater flexibility
in the operation of the Growth and Stability Pact are noteworthy
in illustrating how the debate about economic policy in the Community
is developing. We clear the document.
56.10 However, whilst we understand the desire
to implement the reforms as quickly as possible, we should like
the Minister to give us a fuller explanation as to why he felt
it necessary to override the scrutiny reserve. In particular we
should like to know what the adverse consequences, if any, would
have been of indicating support for the measures whilst insisting
that a final decision should await the conclusion of parliamentary
scrutiny.
200 OJ No. C 236, 2.8.1997, p. 1. Back
201 The
12 Member States that have adopted the euro have stability programmes,
whereas the other 13 Member States (UK, Denmark and Sweden and
the ten new Member States) produce convergence programmes. Back
202
This obligation does not apply to the UK whilst it remains outside
the eurozone, but the UK is required to endeavour to avoid excessive
deficits. Back
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