The EU is promising to whip heavily indebted countries back into shape more quickly than in the past, but experts are casting doubt on whether the bloc’s new measures will help countries to get their houses in order.
After nine months of squabbling, EU finance ministers on Tuesday heralded an “historic” agreement on how the EU polices debts and imbalances. If the accord holds true, countries’ debt levels, deficits and imbalances will be closely watched and controlled by the EU.
European Economic and Monetary Affairs Commissioner Olli Rehn dubbed the agreement a “quantum leap” for economic surveillance in Europe following the meeting of finance ministers, who decided to overhaul the way the EU monitors countries’ debts after fines destined for heavily indebted countries during the economic crisis were not enforced.
Ministers claimed they had learned the lesson from the euro crisis and promised that fines would be more automatic under the new rules.
To force the EU not to follow through on sanctions, ministers will have to get a majority of member states to vote against imposing fines on a country that is heavily indebted.
This is called a reverse majority, which is usually more difficult to attain, and which faced a lot of resistance when it was first proposed last year.
In total, Tuesday’s agreement encompassed six separate legislative proposals, all of which are aimed at overhauling the Stability and Growth Pact, born in 1997 to maintain the stability of the euro.
Though ministers congratulated themselves for making history, they still face over 2,000 amendments from members of the European Parliament, with whom they will start talks in April in the hope of finalising the text by June.
On four of the six proposals, they will need the approval of the Parliament to complete work on the package. The revamped agreement has created two new hoops for countries to jump through: an expenditure benchmark, so that revenue windfalls are not spent but used to reduce budget gaps, and debt reductions by 5% annually over a three-year period.
The agreed debt ceiling for countries is 60% of GDP. This is the first time that countries will be punished for exceeding debt. Until now countries have incurred sanctions only if their deficits go above the agreed 3% of GDP threshold, which also remains valid in the new agreement.
According to the agreement, fines could kick in once a country edges over either of these ceilings and could reach up to 0.2% of GDP, to be paid into a non-interest bearing deposit.
Excessive imbalances will also face recommendations and fines if they are not brought into line. As part of the package - and to avoid any nasty surprises - member states will have their budgets vetted by the European Commission first.