Fabian Demicoli

Budgetary Surveillance in the Euro Area

 GRTU's Director General Vincent Farrugia as EESC Rapporteur of the EESC Opinion on "Budgetary surveillance in the euro area" today at the first study group meeting presented his paper which was very favourably received.

 

I brief the paper stated that fiscal discipline is essential for long term economic growth but is often jeopardized by short-term considerations, which have recently been heightened by the need to counteract the recession. This represents a considerable threat to the eurozone, particularly due to asymmetric effects on the fiscal sustainability of different Member States and raises further questions regarding the suitability of the Stability and Growth Pact as an instrument of economic convergence.

The European Council in December 2010 proposed an amendment to the Treaty to establish a permanent mechanism to safeguard the stability and economic governance of the euro area by end June 2011. This is to be commended as it would contribute to the gradual restoration of credibility in the euro area. There however remains much work to be done in terms of the practical dimensions of the implementation of these conclusions.

The proposals put forward in the paper to reform the Stability and Growth Pact included:

a focus on the debt rather than the deficit criterion to help in the implementation of counter-cyclical fiscal policies, while ensuring a progressive drop in debt to GDP levels;

broader macroeconomic assessments;

a focus on annual expenditure growth in relation to that of GDP, backed by an enforcement mechanism in the form of an interest-bearing deposit;

country-specific recommendations in the case of emerging risks, with a corrective arm through a non-interest bearing deposit in case of an excessive deficit which may be converted into a fine;

numerical fiscal rules to govern national budgetary frameworks to meet the EMU fiscal framework.

These proposals are part of a broader reform of economic governance spurred by the objectives outlined in Europe 2020 strategy.

This week on behalf of EESC Vincent Farrugia also participated in the conference entitled "Towards integrated economic governance in the EU: The European Semester"

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