EU Commission: “essential cornerstone of reinforced economic governance is to coordinate fiscal policy in advance”

The EU Commission’s proposals for in-advance peer-review of proposed national budgets has provoked a heated political reaction in the Dáil.  As Miriam Lord wryly notes, the a vice-president of the European People’s Party, Fine Gael’s Enda Kenny is being accused of Euroscepticism.

However Taoiseach Brian Cowen doesn’t seem as opposed to the proposals as, say, the Swedish Prime Minister, Fredrik Reinfeldt.

In Germany, despite a difficult week, Chancellor Angela Merkel welcomed the proposals

Chancellor Angela Merkel praised the EU’s attempts to crackdown on irresponsible spending, and said the budget measures did not necessarily usurp the powers of national parliaments.

“I would say that the budgetary plans of the member states are not secret anyway, so the Commission can already form an opinion about what governments put forward during budgetary debates,” Merkel told reporters in Berlin.

Her coalition partners are not so enthusiastic

Free Democrat (FDP) leader Guido Westerwelle, German foreign minister and deputy chancellor, said the proposals infringed on a “core competence” of parliamentary democracy.

“It’s the German Bundestag and national parliaments that determine national budgets, not the European Commission,” he said.

German MPs in all parties expressed concern yesterday that the Commission proposals would curtail their influence.

As the Irish Times European correspondent, Arthur Beesley, reports

THE EUROPEAN Commission is bracing for a battle with Germany, France and other member states over proposals to compel the 16 euro states to submit draft budgets to Brussels before they are presented in parliament.

…..

Already, however, there are signs of resistance from Germany and France. “We are all striving for deeper and better co-ordination, but what is not open to question is the solemn responsibility of national parliaments,” a German source said.

After a cabinet meeting in Paris, the response from the French government’s spokesman was frosty. “It’s parliament that votes on the nation’s budgets, it’s not the European Commission that votes on the budget of the French nation,” he said.

When announcing the proposals EU Commission President José Manuel Barroso laid down a challenge for eurozone national governments

EU commission chief Jose Manuel Barroso said: ‘You can’t have a monetary union without an economic union and this is the absolute prerequisite for having monetary union.’

And the EU commissioner for Economic and Monetary Policy, Olli Rehn, set out the specific proposals

The Lisbon Treaty provides plenty of room for progress through a better and full use of the existing economic policy instruments, and through revised and new secondary legislation, where needed. In particular, article 136 on economic policy coordination enables us to develop new tools for reinforced economic governance in euro area.

Today’s communication is built on three blocks:

First, we must reinforce both the preventive and the corrective arms of the SGP. The Pact is a solid set of rules, but it has suffered from a chronic failure to comply with rules and principles.

The essential cornerstone of reinforced economic governance is to coordinate fiscal policy in advance, in order to ensure that national budgets are consistent with the European dimension, so that they don’t put at risk the stability of the other member states. This can be done in the framework of a European economic semester. [added emphasis]

The Excessive Deficit Procedure will remain the core of the implementation of the Pact. But we need to sharpen our teeth. We should speed-up the steps of the EDP and make more rigorous and conditional use of EU expenditure to ensure better compliance with the rules of the Stability and Growth Pact. This will require changes in secondary legislation.

We need to apply rigorously the current Cohesion Fund regulation when dealing with Member States in repeated breach of the Pact.

Back in the Irish Times, Arthur Beesley, again, with this analysis

Article 136 gives ministers the right to vote on these matters by qualified majority, meaning no minister has a veto over a decision of the wider group. Implicit in the proposal is recognition that toothless surveillance has only magnified the problems of the euro. When EU leaders decided to go for broke last weekend by creating a mammoth rescue fund, the message was the foundations of the euro were under threat.

The message from Barroso is that this move was but the first part of a new grand bargain, the second part being deeper co-ordination in return for hundreds of billions worth of solidarity. “Member states should have the courage to say whether they want an economic union because they don’t want that, it’s better to forget monetary union altogether.” It’s a fundamentalist argument.

The counter-argument will be too.

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  • The main thing that’s annoying me about this is the attempt to shut down debate on a genuine concern by crying “Euroskeptic”.

    BTW, Enda is just one of fourteen EPP vice-presidents.

  • Garza

    It looks like it might be possible that the EU will force the ROI to raise its corp tax as well. Great for us if true.

  • Further evidence of the Lisbon 2 con job. It’s no harm to be a Euro sceptic when it comes to light that a Government would conspire with a foreign power to mislead its people on an issue so fundamental to its sovereignty….

  • an madra amu

    altough it is probably not worth the paper it is written on,the Lisbon guarantees included retention of taxation policy for Ireland,therefore any attempt by the commision at tax harmonisation will be difficult and may require a referendum;dont forget the Uk signed up to the Lisbon treaty aswell and although it is not a member of the eurozone ,any future increase in eu economic governence will effect the Uk just as much as the republic

  • Damian O’Loan

    Without wishing to distract from your thread Pete Baker, I thought you may be interested in the Pope’s latest musings on the Enlightenment, in case you haven’t seen them:

    http://www.guardian.co.uk/commentisfree/andrewbrown/2010/may/13/religion-pope-benedict-xvi?showallcomments=true#end-of-comments

  • Alias

    “… so that they don’t put at risk the stability of the other member states.”

    It is an interesting innovation to apply systemic risk to states and to use it to further undermine their national sovereignty.

    What is really meant by states that have large debts (due to making taxpayers responsible for the losses of private businesses) cutting their expenditure on public services is that they should do so in order to ensure that they have enough money to repay the debts that they have assumed. That is what it means to guarantee failed financial institutions: taxes are raised and then diverted to foreign lending institutions in the form of debt repayment.

    While the EU is attempted to apply the concept of systemic risk to states, it has used systemic risk before to ensure that the banks within the eurosystem that lent recklessly to banks in Ireland were guaranteed by the Irish state. And so the Irish government duly put the interests of foreign banks before the interest of the people who elected them, being duly obliged to act in the European national interest rather than in the Irish national interest. In that way, the ‘contagion’ caused by reckless lending by eurosystem banks was confined to Ireland (where it only spread from banks to taxpayers) rather than to the banks in the EU states that lent recklessly to Irish banks and who actually suffered the losses (or would have if the europhile Irish government did not underwrite those losses).

    At any rate, the Irish people can’t say that so-called eurosceptics didn’t warn them. But even now – as their government forces them to repay money to EU banks that they don’t owe to those banks – they’re not listening.

  • oilibhear

    The devil is in the details and it depends on how far a reach the Council should have into the budgets of other members. In principle, I am not opposed to this depending on the terms under which ministers may reject a budget. (They would need to be strict and simple criteria to avoid politicisation or interference.)

    The problem thus far has been the willy-nilly approach towards breaches of the Stability and Growth Pact. Keeping with the terms of that pact are a good idea in principle and breaches should be kept in check.

    Reinfeldt’s comment’s that states no in breach of the pact should not have to show their budgets in advance sounds fair. States that are in breach could be treated like “bad children” (including us at this time, but also France and Germany should they breach it again) and have to show get pre-approval for their budgets – no ifs, no buts.

    That would be a greater motivation to keep public books in check than any fines or penalties.

  • Brian Cowen insists there will be no change to corporation tax, and it would seem to be a foolish thing to do when we need to attract business.

    The other side of the coin is if a shared currency does not lead to a shared economy – whats it for.

    I hear the Brits have virtually ‘outlawed the 500 Euro note. Too easy for fraudsters and other crooks…

  • John East Belfast

    Alias

    “While the EU is attempted to apply the concept of systemic risk to states, it has used systemic risk before to ensure that the banks within the eurosystem that lent recklessly to banks in Ireland were guaranteed by the Irish state. And so the Irish government duly put the interests of foreign banks before the interest of the people who elected them, being duly obliged to act in the European national interest rather than in the Irish national interest”.

    When the ROI Govt guaranteed the Irish Banks debts (that night in October (?) 08 it was to stop a run on the Irish banks the next morning. Basically the entire Irish banking system would have collapsed the next day. They couldnt allow it to get that far on the hope that the Irish Bank’s creditors and their Insurers would pick up the bill – by then the damage would have been done.

    The big gamble was that the guarantee would never be called upon.

    I recall the debate thereafter on Slugger – many on here were calling it a master stroke – in my opinion at the time half of it was – but the other half (ie the inherent insolvency of the Irish Banks) was still to come home to roost.

    However what it wasnt was a conspiracy – it was just manged chaos.

    However the general point is you cannot have monetary union without economic convergence and the latter is consistent with converged fiscal policy and national debt.

    There is no question that the German experience with Greece is such that they will not allow it to happen again – ie they will demand fiscal convergence of the other “rogue” states with their own and yes this will impact on national sovereignty

  • oilibhear

    “I hear the Brits have virtually ‘outlawed the 500 Euro note.…”

    Some cheek when they have £1,000,000 and £100,000,000 notes! (From what I understand the BoE is required to have “real money” to back up NI and Scottish notes and these are printed to save space.)

  • Ah, but how many people would have such notes? It was on the news tonight. Apparently the 500 Euro note is a gift to money laundering and fraud. Seems a bit late really, considering the real ‘fraudsters’ were the banks…

  • oilibhear

    Not in circulation at all (see the print: “payable on demand” but only to the BoE).

    Must be a slow news day, that fraudsters story is an old one. Are you convinced by it? Sounds like euro-bashing. They’re such a pain in the arse to shift!

  • No I am never convinced by anything a politician tells me,

    It was a slow news day. A classic day after, for everyone.. The ‘Euro baiting’ is about to begin, and it will get dirty…

  • Alias

    A lot of folks were saying that the Bank guarantee scheme was a masterstroke but I (Dave) wasn’t one of them. At the time folks were saying that it would cost the Irish state nothing, I had a figure of 60 billion cost.

    Of course I was wrong back then. 60 billion was a gross underestimate.

    http://sluggerotoole.com/2009/02/11/support-provided-to-anglo-irish-bank-in-september-2008/

    And it was a “conspiracy” – three europhiles deciding to make the nation responsible for the debts owed to eurosystem banks without consultation with the nation is exactly what a conspiracy is. It was a conspiracy to bail-out EU banks without giving the nation a choice. Banks would not have collapsed if that decision was not taken – all that would have occurred is that bondholders would have to take a large loss as a part of some restructuring process. In fact, should an event would have greatly improved liquidity since the bondholders would lend more money to ensure said orderly restructuring and a return of their money. In the case of Anglo, most of the depositors were foreigners, and there was no justification whatsoever for Irish taxpayers to retrospectively underwrite their lossmaking investment.

    The principle agenda was to contain the contagion caused by reckless lending of eurosystem banks to Irish banks, ensuring that only Ireland was damaged by the reckless lending of banks in other EU states. You can call it a cockup if you believe that guaranteeing several hundred billion of money that was squandered in inflated property values was smart thinking but nobody who gave it any thought at all came to that deranged conclusion – folks only repeated that gibberish because they have a blind faith in their government and believe any crap it tells them.

    Incidentally, many politicians in Ireland are now calling for an public inquiry into the events of the night in question.

  • John East Belfast

    “Banks would not have collapsed if that decision was not taken – all that would have occurred is that bondholders would have to take a large loss as a part of some restructuring process”

    Of course the Irish Banks would have collpased the next day – and they would have collapsed the Irish economy with it.

    The irish Banks were and still are tecnnically insolvent. From memory Anglo had a Eur 110b Balance Sheet with about Eur 5b equity. The rest was borrowed from a range of sources including private individuals and corporates attracted by high rates – I knew several indiduals and many corporates in the north including my own employer for a while. The other side of the Balance Sheet was loans (mostly property) and even with a 30% impairment it was in deep trouble.
    The next morning everyone was shaping up to get their money out of Irish Banks and move it somewhere safe – Northern Rock type queues would have formed outside every bank which simply didnt have the cash and couldnt raise it – the ROI Govt would have had to step in with real cash.
    The overseas cerditors would have called the receivers in and went to town on the assets.
    Confidence in the Irish economy and govt would have evaporated and chaos would have reigned Greek style

    Instead they gambled – guaranteed everything which certainly stabilised the system and deferred the pain in a controlled manner over years – which is where we are now with NAMA etc.

    The hope was that they will have to take the write downs on the chin over years to come and there may even be a chance for assets to recover as opposed to be permanently written down in a fire sale.

    They were caught between a rock and a hard place and on balance they had little choice.

    If there was a conspiracy it may have been a very Irish one – I am sure some high worth Irish individuals were on the phone in a panic.

  • oilibhear

    Yes.

    “Instead they gambled – guaranteed everything which certainly stabilised the system and deferred the pain in a controlled manner over years …”

    When people talk about NAMA, Anglo and the bailouts they throw the word “gamble” around without appreciating the greatest single gamble (probably) in Irish history. The day Brian Lenihan said we’d guarantee everyone savings up to a limitless amount, he bet the house on a chance that no-one would call his bluff. Everyone just accepted it (more or less) and the run on the banks just stopped. It so easily could have gone the other way.

    Now, whatever we think of NAMA, Anglo or the bailouts, the guarantee was the single most psychotic, crazy and irresponsible thing – and, at the same time, the single (probably) most genius piece of bluffery ever exercised in Irish history.

  • “Reinfeldt’s comment’s that states no in breach of the pact should not have to show their budgets in advance sounds fair. ”

    Unless you’re lying to Eurostat, as apparently the Greeks did for a while.

    It’s notable that it is in this crisis that the dual personality of the Commission versus the States that gave it authority is recognisable – in the good times the Commission is happy to stay in the background and act like not much has changed since the EU Community, and it will be interesting to see how France and Germany find being head to head with them which in the past only “bad” Europeans like the UK would do.