ECOFIN:Stronger economic governance

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The Ecofin Council on 4 October gave the go-ahead for a package of six laws to enhance economic policy coordination and surveillance in the European Union, and more specifically in the eurozone. The aim of this "six-pack" is to ensure fiscal and macroeconomic stability throughout the Union.

Fiscal stability

Four of the six acts will reform the EU's Stability and Growth Pact, which is the framework for the coordination of national fiscal policies to safeguard sound public finances. The Pact defines reference values for the annual general government deficit (3% of GDP) and for gross debt (60% of GDP). In case of non-compliance, a so-called excessive deficit procedure is launched to induce the country concerned to correct the deficit.

In the new legislation, greater emphasis is put on reducing public debt. Those member states whose debt exceeds 60% of GDP will be required to take steps to decrease their debt, even if their deficit is below the reference value of  3% of GDP.

In order to enforce budgetary discipline in eurozone member states, sanctions will kick in earlier and apply more consistently than before. For instance, if a country which has become subject to the excessive deficit procedure has failed to take the necessary measures to correct the deficit, a non-interest-bearing deposit amounting to 0.2% of GDP will be required. Further non-compliance would result in a conversion of the deposit into a fine. In addition, a more robust procedure with a new Council voting rule will trigger the sanction more automatically than at present.

At the same time, member states' accounting, statistical and forecasting practices will be brought into line with EU standards. If a eurozone country is found to misreport relevant data, an additional fine can be imposed.

Macroeconomic stability

The other two acts will establish an early warning system for unwieldy macroeconomic imbalances and a mechanism for their correction. These imbalances refer to unhealthy developments in diverse areas of the economy such as unit labour costs, credit growth, export-market shares or housing prices.

Under the new system, a scoreboard of economic indicators will be used to assess potential imbalances. Its aim is to trigger an in-depth analysis to determine whether these are problematic. If an imbalance is deemed severe or risky, the member state concerned can become subject to an excessive imbalance procedure. Repeated failure by a eurozone country to take appropriate action may lead to a yearly fine equal to 0.1% of the country's GDP.

Finalisation of the new rules

This approval by the ministers was preceded by the assent of the European Parliament on 28 September. After legal-linguistic revision, the texts will be officially adopted and published in the EU Official Journal.

The new rules are expected to enter into force by the beginning of 2012.