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Economic Governance in the EU
Aug / 2010


The following are excerpts from the statement of Mr. José Manuel Durão Barroso, President of the European Commission, on economic governance in the EU at the European Parliament plenary session debate in Strasbourg.

¡°The economic crisis has put the European Union before a series of serious tests. The reinforcement of economic governance is of course just one aspect the EU response to the crisis.
The response has also included other dimensions: the comprehensive reform of the regulation of financial markets; and proposal for a new European supervisory architecture. As I said this morning, a deal is within reach in the coming days. I call on all parties to maintain the positive dynamics to ensure that the new authorities can start their work in early 2011. It will also keep Europe in the lead in implementing our G20 commitments in this area. The measures to secure financial stability, first through the Greece programme and then through the mechanisms for the Euro area as a whole; and last but not least, the programme for growth and jobs through structural reforms included in the Europe 2020 strategy.
Our response to the crisis is a holistic one: we stabilize, we consolidate and we modernize. We prepare our social market economy to ensure a better future for our citizens.
But for now, let me focus on governance.
The challenge of the past few months has centred on whether our economic governance is equal to the new pressures placed on our economic and fiscal stability.
We have the Treaty provisions in place which allow us to act. We have the institutions we need to make it work.
We faced a real risk: and we successfully resisted it. Now we are filling in the gaps we have identified, to pre-empt such risks for the future.
I first announced to this Parliament the ideas we fleshed out in the Commission Communication of May 12th. Our debates since then are reflected in the Commission Communication of June 30th. Now we are moving on to the operational phase, with the Commission ready to submit legislative proposals as early as September.
Before explaining the issues in detail, I would like to emphasize how much this process has benefited from the work with the European Council, the Task Force chaired by the President of the European Council, and indeed the deliberations of this Parliament. This work has helped to build a real European momentum. I hope that this will translate later into a swift consideration and swift adoption of the legislative proposals.
Our approach to economic governance is to have rules that are more comprehensive and more efficient. The current Treaty gives us plenty of scope to do this – and I am convinced that the Community method will once again give us the right answer.
We need a stronger surveillance regime. That means one that is stricter, and broader, covering budgetary, macro-economic and structural policies. A regime that acknowledges the reality that every Member State has its own particularities. But a regime which also reflects the inter-dependence we all know is central to the European economy.
What does this mean in detail?

First, we need more coordination. Key to this is the "European semester". It will enhance economic transparency and encourage peer reviews, ex-ante, among Member States. If Member States submit their Stability and Convergence Programmes and their National Reform Programmes simultaneously, we will have a truly joined-up approach. This European perspective will be an asset for Member States as they plan, discuss and adopt their national budgets according to their national constitutional procedures.

Second, we need the credibility that comes with better enforcement. This means a refined incentives and sanctions toolbox - a more effective "mix" of both preventive and corrective action. We need a Stability and Growth Pact that is targeted, not only regarding the deficit criterion, but also on debt. A pact that has real teeth and is respected. Of course the most effective sanctions are those that do not need to be used, because they create the incentive to comply – but in order to do so, the rules need to be strong enough to command this respect.

I want to be very clear on this. Without a more stringent system of incentives and sanctions, we will not reinforce economic governance in a credible way. If a Member State does not respect the commonly agreed rules then it must be prepared to suffer the consequences. This means also that sanctions must be designed so as to apply to all Member States, on an equal basis. Parliament can be reassured that the Commission will do its utmost to ensure that this will be the case.

As regards financial sanctions, we propose to base them on a broader range of expenditure from the EU budget than before. In a nutshell, all Member States should in the future face the risk of losing money from the EU budget in case of persistent non-respect of the fiscal rules. The application of these rules should also be quasi-automatic, as regards the corrective arm of the Stability and Growth Pact.

The timing of measures is also key. We must not fall into the trap of waiting too long before sanctions kick in. Incentives and sanctions must be brought upstream, so that action is deployed before the situation gets out of hand. Preventive action can be much more effective than corrective action – but it requires discipline and political will. One of the weakest points of our current rules is the absence of mechanisms to deal with problems appearing in so-called "good times". We are addressing this in our proposals, in particular as regards the Euro area.
Third, our surveillance needs to capture all the key elements. It must not be restricted to fiscal policy alone. We have seen that such a narrow perspective does not work. We must have the tools to detect macroeconomic imbalances among Member States. Such imbalances weaken the cohesion of the EU and in particular of the Euro area. A comprehensive scoreboard of indicators will give us what we need to identify increasing divergences and to propose remedies. They need, of course, to be complemented by appropriate enforcement mechanisms for such remedies.

Fourth, as well as stricter fiscal rules, we also need to push the structural reforms, innovation and trade that will put Europe back on track in terms of growth, and create the jobs for the future. That is what our Europe 2020 Strategy is all about. The European Council endorsed it a fortnight ago. Now we need to put it into practice, to ensure that national and European policies are fully in tune, creating the virtuous cycle where growth in one part of Europe helps drive growth in another.

Fifth, let me repeat the utmost importance of transparent and robust financial market regulation, and call on all actors in the process to adopt the necessary reforms as quickly as possible.

I would like to underline the historic dimension of the reforms we are putting forward. They constitute an answer to the challenges that our single currency is facing in Europe, but they also have important impact in the global financial markets.
The time has come to give to the economic and monetary union the tools it needs to fully function in order to ensure its credibility.

What is at stake is not just some technical rules, what is at stake is the future of the euro, and we can say to some extent it's the future of the of our European project.

To make it possible, we have to show without any possible doubt that the World has changed; and that our proposals on economic governance are not more of the same, but a real breakthrough.

Today the conditions are met to bring together the Stability and Growth Pact, economic governance and the structural reforms in a consistent system within economic and monetary union.

This system should harness all our tools to the common objective: the structural funds, budget surveillance, and the reforms foreseen in the ¡°Europe 2020¡± strategy.

This is a strategy for the whole Union. This is not just an addition to different strategies, it is a real economic strategy for Europe. But we can only have a real European economic strategy if we have a truly economic system of governance. However, the system of incentives and sanctions should reflect the special responsibilities of the Member States that have already adopted the Single currency, in strict compliance with the legal framework. Those Member States share a common good called the Euro and it would not be acceptable that the misbehaviour of some members would put at risk all the others.

I am convinced that these proposals will mean a step change in the economic consistency of the Union, while at the same time preserving the inevitable specificities between those Member States who are members of the Euro area and of course respecting those who are not yet.

The current situation requires ambition and boldness: the proposals of the Commission will send out a strong message, both inside the EU and worldwide, that the European Union is equal to the task.

It is therefore paramount that our three institutions work consistently and in a spirit of close cooperation to finalize and approve these proposals, with mutual confidence and belief in our common future. It is important that all our partners worldwide understand that we are ready to whatever it takes defend the euro and the stability of our common currency.
The Commission's task is to use its right of initiative to further the common interest of Europe and its citizens. It is determined to fulfil this task, and convinced that these proposals are the right way forward for Europe.¡±

Priorities for the Belgian Presidency
On July 5th, State Secretary Olivier Chastel presented the programme for the Belgian Presidency of the Council of the European Union to the Conference of Community and European Affairs Committees. The COSAC is a cooperation that brings committees of the national parliaments dealing with European affairs together with the European Parliament representatives. These meetings are mostly held in the capital city of the country that is fulfilling the role of the EU presidency.

¡°We will concentrate on 6 main priorities for Europe,¡± declared Olivier Chastel to the attendees. The first concerns the way out of the crisis and the return to economic growth. The Belgian Presidency will pay particular attention to the legislative initiatives that aim to strengthen the supervision of the financial sector. Next to this, for Olivier Chastel, ¡°the establishment of the European Systemic Risk Board and the European System of Financial Supervisors, that must control the banking sector, the insurance sector and the financial sector via three supervisors, is very urgent.¡± The proposal for a directive regarding investment fund managers, to regulate the so-called hedge funds, is also urgent.

The second priority of the programme concerns the promotion of social progress and combating poverty and social exclusion. ¡°The Belgian Presidency will be the first presidency to implement the revamped European employment strategy in the framework of the objectives set by the EU 2020 strategy for employment and growth,¡± said Olivier Chastel.
The third priority concerns the re-opening of negotiations concerning the climate and environment, and so also the preparation for the Conferences in Cancun and Nagoya.

The fourth Belgian priority is the deepening of the area of freedom, security and justice.
Mores specifically, priority will be given, in the field of judicial cooperation in criminal matters, to the recognition of judicial decisions taken by the member states. Regarding this, Olivier Chastel said, ¡°we will also advance the activities concerning the protection of victims and the directive on trafficking in human beings¡±.

The fifth priority concerns the global influence of the Union and the efficiency of its external actions, also with regard to the expansion. ¡°Our objective is the improvement of the efficiency of the Union¡¯s external actions. In this respect, the Treaty of Lisbon forms a breaking point in the organisation of foreign involvements,¡± stated Olivier Chastel.

The further implementation of the Treaty of Lisbon, which came into effect on 1 December 2009, is also a priority for the Belgian Presidency. Together with the ¡°magic square¡± of the Parliament, the European Council and its Permanent President, the High Representative and the European Commission, the Belgian Presidency will devote itself to a flexible, positive, constructive and harmonious collaboration.

The Belgian Presidency hopes to satisfy the expectations that have been set, concluded State Secretary Olivier Chastel.