Hungary hopeful of reaching deal on economic governance

MEPs take tougher line than finance ministers; role of Commission the main stumbling block.

Member states are still hopeful that six legislative proposals on economic governance will be agreed by the end of June despite the European Parliament distancing itself from the position agreed by finance ministers.

MEPs voted in favour of giving the European Commission a stronger role in overseeing countries’ finances than was agreed between member states, but sources close to the negotiations believe a deal between the two sides can be reached.

Talks between the Parliament, member states and officials from the Commission began on 20 April, a day after MEPs in the influential economic and monetary affairs committee voted on amendments to the six pieces of legislation, in most cases taking a tougher line than that agreed by EU finance ministers.

Viktor Orbán, Hungary’s prime minister, has made the completion of the economic governance package one of the priorities of his country’s presidency of the Council of Ministers, which lasts until the end of June. Speaking before the vote he said that MEPs “cannot get more” than the stance already agreed by finance ministers.

However, there is a belief that there is some room for manoeuvre, particularly among the member states from northern Europe, which, having convinced finance ministers from more profligate southern states to sign up to the economic governance package during talks at the turn of the year, see the tougher line taken by MEPs as helping their cause.

Commission powers

The stumbling block remains the extent to which the Commission will be given the role of policing economic governance and whether sanctions should be automatic when member states breach rules. The position agreed by finance ministers favoured a gradual approach to sanctions, consisting of six steps before a qualified majority of countries would be able to block such a move.

MEPs would make this tougher, giving any Commission recommendation far greater chance of being adopted.

Fact File

Reducing debts

Members of the European Parliament’s economic and monetary affairs committee voted on 19 April to:

Increase the use of reverse majority voting to make it harder for countries to avoid taking action to reduce the size of their public deficits and debts. If the European Commission recommends that a country take action to control its public finances, or that a country should be fined for failing to take action, the proposal can only be blocked by a weighted majority of member states;

Give the Commission a stronger role in assessing a country’s performance, issuing warnings and recommending sanctions. In most cases, the Commission would be responsible for assessments, warnings and sanctions whereas finance ministers agreed that should be the role of member states;

Increase fines for countries that fail to take action to address problems in their public finances. The committee agreed that countries that falsify their public accounts should face a one-off fine of 0.5% of gross domestic product (GDP). Fines would also be imposed earlier if countries failed to take corrective action. In cases of “deliberate and severe non-compliance” with recommendations to correct macro-economic imbalances, MEPs want fines to be increased to 0.3% of GDP, compared to the 0.1% suggested by finance ministers;

Oblige countries with a debt-to-GDP ratio higher than 60% to reduce their debt by an average of five percentage points over three years. Finance ministers said the reduction should be five percentage points in each of the three years.

Another official said that some member states were not opposed to a larger role for the Commission and a swift compromise was not out of the question.

This was the first time in the field of macroeconomics that the Parliament has used powers introduced by the Lisbon treaty, giving it an equal say on legislative proposals to that of member states.

MEPs in the economic and monetary affairs committee from across the political spectrum repeatedly emphasised the need for the Parliament’s views to be taken into account.

The proposals were drawn up to ensure better economic discipline as a response to the eurozone sovereign-debt crisis, and the member states’ position was agreed on 15 March after some hard bargaining.

MEPs agreed on a slight softening of the application of the rules on public finances, saying that the Commission should take more account of public investment for growth and job creation when assessing a country’s spending plans. They also called on the Commission to draft reports on establishing a common system for issuing eurobonds and creating a European monetary fund.

MEPs were divided on several issues, and some wanted to postpone talks with member states until the full Parliament had a say on the proposals. Socialist and Green MEPs, who voted against some of the proposals, said that the moves did not go far enough to promote economic growth.