States may have to get EU approval for budgets
THE GOVERNMENT could be forced to seek advance approval for its budgets as part of controversial plans by the European Commission to drive stronger “economic governance” across Europe.
Plans to have national budgets approved in advance by other European governments to avert excessive deficits met a cool reception from finance ministers meeting in Madrid at the weekend.
Although euro zone monetary policy is united, fiscal policies differ, and some countries – notably Greece – have run into trouble during the global crisis with budget deficits exceeding 10 per cent of gross domestic product (GDP) helping to weaken the euro.
Olli Rehn, economic and monetary affairs commissioner, outlined the “peer review” proposal, which will be presented in full on May 12th. He proposed “a systematic and rigorous assessment of national budgets before they are presented to national parliaments”, leading to “remedial actions” if necessary.
Jean-Claude Juncker, the Luxembourger who chairs the euro group, supported the idea.
“It makes sense to discuss among the finance ministers the broad lines of the budget before these budgets are introduced in the parliamentary procedure,” he said, denying this would diminish the rights of national assemblies.
Other member states, however, immediately poured cold water on the possibility of restricting or supplanting national sovereignty over budgets. Elena Salgado, the Spanish finance minister, said there was no question of European ministers voting on the national budgets of other countries.
Joerg Asmussen, Germany’s deputy finance minister, also rejected the idea of diluting national control of budgets. It was “quite clear that national budget authority has to remain unrestricted, although we are obviously subject to the rules of the stability and growth pact”.
This euro zone stability pact – a widely abused agreement that was supposed to limit annual budget deficits to 3 per cent of GDP – is the existing, imperfect framework for co-ordinating Europe’s fiscal policies, and some of the more fiscally rigorous northern EU states are in favour of strengthening it.
Ireland’s budget deficit is on track to be around four times this limit in 2010, the Economic and Social Research Institute (ESRI) said last week.
Brussels pushes bid to police national budgets
European governments will have to submit their national budgets to Brussels before taking them to their own parliaments, under plans pushed on Friday by eurozone finance chiefs.
EU Commissioner for economic and monetary affairs, Olli Rehn, told European finance ministers meeting in Madrid that his proposals for cross-border budget surveillance, to be unveiled on May 12, represented the “main critical lesson of the Greek situation.”
That “situation” is a debt abyss that has forced Greece’s eurozone partners to draw up plans for tens of billions of euros in rescue loans.
Rehn’s scheme — which would initially apply only to the 16 countries that share the euro but which he eventually wants rolled out to the rest of the 27-nation European Union — drew staunch resistance from Germany.
But it won “100 percent” backing from euro finance chief and Luxembourg Prime Minister Jean-Claude Juncker.
“There is a pressing and urgent need to strengthen economic policy coordination and … surveillance,” Rehn told reporters after informal talks among the euro partners in the Spanish capital.
Given the “rather optimistic” plans to get public deficits back on track in many EU nations, and the knock-on effects for inter-dependent European nations’ credit ratings and general economic performance, Rehn said old habits had to change.
“We are of the view that we should integrate the European dimension into the national budgetary process, early enough to make a difference,” he underlined.
“That would imply draft national budgets, or broad budget outlines, could be subject to peer review by euro area member states before being approved by their national parliaments.”
He said he was “very encouraged” by the debate around the table, and while he said he would take account of stated German opposition, he stressed that the commission, as “guardian” of EU treaties, has the “right of initiative — and you bet I will use it.”
Despite the German stance, Rehn said that a “constructive discussion” was had on reinforcing the eurozone’s Stability and Growth Pact, which fixes deficit and debt levels, routinely breached since the crisis, “and how to improve, broaden and deepen budget surveillance as well as economic imbalances” across EU member states.
The plans, which form a central part of a broader drive for transnational EU economic governance or government and will be considered by a task force led by EU president Herman Van Rompuy, will receive something of a trial with the economic policies of two eurozone countries being put to peers at forthcoming Eurogroup meetings, Juncker added.
Spain and Finland will be the first to be placed under the scrutiny of partners, with Juncker also demanding Eurogroup representation on Van Rompuy’s committee.