EU finance rules – changes in the horizon

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by Joaquim Rocha, Professor at the Law School of University of Minho

The rules of the Stability and Growth Pact (SGP) for the European Union may yet again undergo some changes. The SGP — whose first version started being implemented in 1997 and since day one has been criticised for vagueness, complexity and juridical fragility — has gone through several amendments seeking to avoid infractions and deviations. Most recent revisions were related to excessive deficit situations into which a number of Member States have been dragged (including Portugal). Following political blockages and negotiation impasses, those revisions were taken to an “extra-Union” solution (conventional/classic international law) via the so-called Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.

At this time, a solution within the EU law framework is pursued. The idea aims to simplify the rules and make them easily manageable by policymakers, public authorities, politicians in general, namely those accountable in the finances. The major line of action revolves around the introduction of a public expenditure’s control index. Simply put, the goal of the financial mechanisms would be transferred from cutting deficit in general to imposing an expenditure limit to the States, which could not override the growth rates of the economy in the mid-term.

It should be a virtuous solution as the fiscal focus has been kept on income, loans and taxes for too long, mistakenly discrediting and setting aside the essential cornerstone of finances: the expenditure.

According to the President of the Eurogroup, Jeroen Dijsselbloem, “We did not discuss how to change the Pact, just how to choose the indicators to assess the compliance with the Pact. (…) It is directly in the hands of finance ministers. It gives us more guidance in the process of designing the budget. It says in advance what you have to do, and you have the control in your hands. There was general agreement that we need an indicator that takes out all the cyclical elements and one-offs but preferably it should be more stable and not change all the time, and we could put more emphasis on indicators that we can actually directly influence as finance ministers“, via Reuters.

On the matter, the Vice President of the European Commission officially addressed after the informal ECOFIN:

Our intention is to focus more on what is really in the hands of the Ministers of Finance, namely the evolution of primary expenditure and new revenue measures. This does not mean that we will put aside the deficit and the debt objectives. It is rather about making it clear what governments are expected to do to achieve these objectives. There was I would say broad support to pursue the work in this direction.(…)  At the same time, we need to be realistic in our expectations, as many underlined that there is no perfect method of calculating the out-put gap, it will always be an approximation“, via European Commission Press Release.

The changes had been anticipated:

EU to consider single “expenditure rule” to cut through budget morass, via Reuters.

Picture credits: Money Scales  by Images Money.

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Editorial of February 2016

 

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Pedro Madeira Froufe, Editor
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Budgetary control, integration, sovereignty.

The budgetary control that the rules of the monetary Union demand from the Member States has given risen to some tension among some of the national Governments and Brussels. The most recent case (and let’s forget about what happened, and still happens, with Greece) regards Portugal. The new socialist Government, supported in the Parliament by Parties that always dealt uncomfortably with the idea and the dynamics of the integration process, is facing its first challenge with Brussels and the European Commission, regarding the Portuguese Draft Budgetary Plan for 2016.

As a matter of fact, the budgetary control (even if only understood as common supervision or monitoring of the internal budgetary decision is, effectively, a control) has the goal, in accordance with Article 126 TFEU, of “avoiding excessive deficits”. One should consider that, in the framework of monitoring that is attributed to the Commission by the same Article, this entity should intervene (and it should be stressed, within its “monitoring” role only) to identify and avoid, in terms of budgetary evolution and public debt, important deviations, within the criteria set out in Article 126(2)(a) and (b) TFEU. In the end, everything is built around the comparison between the programmed deficit and a certain benchmark rate in the relation between public debt and the national GDP (the “famous” 60% of that GDP in terms of public debt).

The Union is a “Union based on the rule of Law”. It pretends to be so with the (final) protection of rights and guarantees, as ensured by the European Court of Justice (ECJ). A Union of Law implies, evidently, the respect and the guarantee that the existent rules are effectively applied. In the case of the Union, the respect of the Primary Law, the Secondary Law, the fundamental praxis and legal acquis that support the dynamics of the integration. However, the reverse results in generating rules, also reasonable, within the context of the permanent balance relation between the Union and the Member States and, naturally, among those (and between each other). These relations must safeguard balance (isonomy) and ponderation, bearing in mind the goals of the integration process. In the end, there is a permanent negotiating process, a consensus dynamics that – even in the framework of the effective application of legal rules – is, naturally, in the foundations of a material “Union based on the rule of Law”.

That said, all actors have indeed to abide by the rules and this shall be done in good-faith (loyalty) even if, in extremis, those rules have to be feasible and balanced.

It is not whichever rule, regardless of the circumstances (and, in this case, the concrete Portuguese reality) that has to be implemented blindly and by hook or by crook. This also blocks the idea and dynamics of the “Union based on the rule of Law” and endangers the integration process. It is, however, inadmissible that some resort to the argument of “the national sovereignty” to criticise existent rules and to say even that the Portuguese Constitution “undoubtedly prevails” over the rules of the Treaties.

It is clear that, in the end, all will come to a solution through the dynamics of the negotiation, through the creation of balances, of bridges of consensus. No one will lose his face in political terms and the idea of respect of the existing legal framework will prevail. That is, ultimately, one of the lessons learned from the History of European Integration.

Picture credits: via this Youtube video [EU Commission’s opinion on the Portuguese Draft Budgetary Plan].

More on the Portuguese Draft Budgetary Plan for 2016 here.