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Commission sets out strategy for economic policy coordination and surveillance

Tuesday, January 13 2004, 1:53

The Commission adopted today a three-pronged strategy to clarify and improve economic policy coordination and surveillance following the 25 November Ecofin Council conclusions. As a first strand of this strategy, the Commission will continue the conduct of economic and budgetary surveillance for all member states in the framework of the Treaty and the Stability and Growth Pact (SGP). It will also continue to monitor developments for countries in excessive deficit. As a second strand, the Commission, based on the experience of the five first years of EMU, will make new proposals for the strengthening of economic governance in the future. Improvements in the implementation of the Stability and Growth Pact will form part of this initiative. Finally, consistent with its role as the guardian of the Treaties, the Commission will seek to establish legal clarity and predictability regarding EMU related provisions of the Treaty. The Ecofin Council conclusions of 25 November have political implications that go to the heart of the European integration process. The Council has reached non-binding conclusions instead of taking a decision with precise legal effects The Commission has therefore decided to challenge the Council conclusions in the European Court of Justice. This challenge will however concentrate on procedural elements only and will not touch on the country-specific economic surveillance aspects of the Council conclusions.

Commission President Romano Prodi said "The Commission will play its full role in Europe's economic governance and the efforts to accelerate the economic recovery and create growth and employment. We will continue our surveillance of Member States' public finances and we will push ahead with the Lisbon agenda through the Spring European Council process. But the 25 November events have political implications. They have made crystal clear that in order to capitalise further on the advantages brought about by the euro we need stronger economic governance. That is why the Commission will make new proposals in this area next month. These proposals aim to ensure that Member States deliver results when they set economic policy objectives at EU level. But as I firmly believe that we are a Community of law, such changes have to be debated and decided through clear Community procedures. In that spirit we have also decided today to challenge in the European Court of Justice the status and validity of the 25 November Ecofin conclusions."

Commissioner Pedro Solbes said: "Pursuing economic policy coordination and surveillance will not be easy in the aftermath of the 25th November Ecofin events. But the Commission will do everything in its powers to ensure a correct application of the Treaty and the SGP. Strong economic analysis and the principle of equal treatment will continue to underpin all our recommendations. In parallel we will pursue legal action in the European Court of Justice to ensure that Treaty based procedures are correctly applied in the future.

We all know that the Council could have adopted the substance of the Ecofin conclusions in the form of Council recommendations, which is what the Treaty provides for in this area. But Member States deliberately chose to take an intergovernmental position. This changes the nature of the budgetary surveillance and it is therefore useful to have the Court's ruling in order to clarify surveillance for the future. Experience over the first five years of the euro has strengthened my view that we need a predictable and transparent framework for economic governance: a framework that balances the single monetary policy with our system of national but coordinated economic policies. Our initiative will strive in that direction."

Continue economic surveillance on the basis of the Treaty and the Stability and Growth Pact provisions

The Commission will continue to exercise fully its role in budgetary surveillance in the framework of the SGP. The Commission started last week the assessment of the latest updates of the stability and convergence programmes and the adoption of recommendations for Opinions on these programmes. Assessments will be carried out in three packages. The next package will be assessed by the Commission on 28 January in time for the February Ecofin of 10 February and the following package on 18 February in time for the Ecofin on 9 March. For the first time, the Commission assessments were published on the day of adoption in order to steer public debate and enhance transparency. Moreover, the Commission services' technical document supporting the assessments will be published in a few days.

The Commission will also monitor the implementation of the Council conclusions for France and Germany. Following the March 2004 notifications on 2003 budgetary outcomes, the Commission will assess whether it is appropriate to proceed or abrogate the currently open excessive deficit procedures (i.e. Portugal, Germany and France) or apply the SGP procedures to other Member States.

Beyond budgetary surveillance in the framework of the SGP, the Commission intends to push forward the economic agenda of the Union with the adoption of the Spring Report in the coming weeks. The Union's economic priorities will be spelled out in order to take advantage of the nascent recovery and push forward with our Lisbon strategy implementation. The ultimate goal of economic governance is to achieve better growth and higher employment and the Commission's Spring Report will play a key role in putting the relevant issues on the top of policy agenda. In that context, the Commission will also present, at the same time, the Implementation Report of the 2003 Broad Economic Policy Guidelines.

Strengthen economic governance

EMU is young and experience over the last five years since the creation of the euro should serve as guidance for future action. The efficiency of economic governance has suffered from the recent episodes. The excessive deficit procedure was not correctly applied but also the implementation of the previous years' BEPGs or the Lisbon objectives is not always respected. The 25 November events show that it is time to make a further step forward.

Building on its Communication of November 2002 the Commission has therefore decided to present next month a new initiative to improve the framework for economic governance in the Union. This initiative will build on the existing Treaty and the draft Constitution text but it could imply changes to the SGP Regulations.

The right balance has to be found between, on the one hand, the need to keep the economic governance framework stable and predictable and, on the other, to improve the system on the basis of experience.

The key elements agreed by the College to be addressed in this Communication are: (i) the need to better combine discipline with economic growth considerations by placing fiscal policy within the broader context of general economic policy surveillance; (ii), the need to focus more on the sustainability of the member states' public finances, (iii), the need to improve implementation by enhancing the common interest in the area of economic policy.

On the first aspect, there is a need to find a new balance between the Broad Economic Policy Guidelines and the Stability and Growth Pact as instruments to co-ordinate economic policy. On the second, there is a need to combine stricter discipline with flexibility in the conduct of national budgetary policies. This can be achieved by, among other things, (i) putting more emphasis on public debt and sustainability, (ii) being particularly strict at the time when the economy is booming and thereby applying more symmetry in budgetary surveillance over the economic cycle, (iii) making more allowance for country-specific differences without putting at risk the equal treatment principle, and (iv) by setting principles for prescribing the budgetary adjustment path and ensuring stronger enforcement.

Re-establish legal certainty for the future

The last element in the Commission strategy is to re-establish legal certainty for the future. From the point of view of the legal and institutional framework, the Ecofin Council conclusions of the 25th of November pose problems. The Commission already stated in the minutes of the Council that in its opinion these conclusions are outside the spirit and the letter of the Treaty and the Stability and Growth Pact. This view has been confirmed by our Legal Service following a thorough analysis.

The Commission decided therefore to challenge in the European Court of Justice the legal status and validity of certain elements of the Council conclusions.

According to the Commission, the Council conclusions of 25 November constitute a violation of the control mechanism laid down in Article 104 EC, Regulation (EC) No 1467/97 and the Stability and Growth Pact resolution. This mechanism represents a series of successive steps and stringent deadlines and is designed to constrain the Council to oblige the Member State concerned to take the measures necessary to correct the excessive deficit.

The Council had the possibility to reject Commission recommendations. It can do so in the light of its own evaluation of the objective economic factors, which form the basis of the decisions to be taken. In that case, it had to set out clearly and unambiguously why, in the light of such objective economic factors, there is no need to adopt the decisions based on the Commission recommendations.

But in the present case, the Council has confirmed the Commission economic analysis. This is highlighted in its recommendations (points 1 and 4 of the Council conclusions). Consequently, it recognised that additional measures to address the excessive deficit of the Member States concerned were necessary. In those circumstances the Council, although it could amend the substance of the Commission's recommendations, has no margin as to the choice of the legal instruments and should have adopted a recommendation as provided for by the Treaty.

The purpose of a Court ruling would be to establish that, in a Community of law, the Treaty rules cannot be ignored or changed for the sole reason that the Council could not reach the majority to adopt the decisions under Articles 104(8) and 104(9), as recommended by the Commission. The purpose of challenging the Council's conclusions would not be to put into question either the economic analysis or the corrective measures recommended by the Council to the two Member States concerned.

Furthermore, the Council decision to hold the excessive deficit procedure in abeyance was taken in violation of Article 9 of Regulation (EC) No 1467/97, which lays down that the excessive deficit procedure shall be held in abeyance only if the Member State concerned takes the measures recommended to correct the excessive deficit in accordance with Article 104 (7). Indeed, the Council could not, in the Commission's opinion, adopt in the form of Council conclusions elements that it should have adopted on the basis of clearly established Treaty procedures.

Finally, the Commission has decided to ask that the Court rules on the case in expedited procedure in order to provide legal certainty as soon as possible with regard to the Council's course of action in case of new Commission recommendations in the framework of the excessive deficit procedure in the future.