‘Two pack’: MEPs plead for redemption fund to cut sovereign debt
By Sarah Collins | Wednesday 13 June 2012
MEPs have voted to create a ‘redemption fund’ that could help roll over up to €2.3 trillion worth of national debt across the eurozone. The idea is included in twin proposals to further centralise budgetary control in the eurozone, known as the ‘two pack’, which were voted through by a large majority in Strasbourg, on 13 June. ALDE leader Guy Verhofstadt (Belgium) said the redemption fund was essential to avoid the splintering of the single currency. “A currency is not eternal, certainly when it is not based on sound unions - fiscal union, banking union, political union and a debt redemption fund,” he said.
MEPs also voted through several key amendments, including a form of “legal protection” for states about to default on their debts. Suggested by French MEP Jean-Paul Gauzès (EPP), the move would ringfence states from rising borrowing costs and allow them time to draw up debt settlement plans with their creditors, without facing multiple downgrades or pressure from speculators. The Spanish and Portuguese governments are adamantly opposed to the plan, which Gauzès said he came under fierce pressure to change. “I was given the impression I would upset sovereign debt markets, call into doubt the credibility of heads of state and government and increase spreads - that this would be a kind of financial market cataclysm,” he said. Gauzès’ report on the Commission’s draft regulation on countries under market stress - COM(2011)819 - was voted through by 471 to 97 (with 78 abstentions).
Portuguese MEP Elisa Ferreira (S&D) also saw key amendments to her report on deficit countries - COM(2011)821 - adopted, including a ‘growth facility’ made up of contributions worth 1% of the EU’s GDP - around €100 billion - and a request for the Commission to draw up a “road map” for the introduction of eurobonds. Ferreira’s report was adopted by 501 votes to 138 (with 36 abstentions). However, a request to have public investments treated more favourably in the debt and deficit statistics of stressed economies did not make it through. Socialists had tried to include a similar amendment during negotiations on the ‘six pack’ of economic governance rules, the precursor to the ‘two pack’. “It’s very important to have more sensitivity and more orientation on growth,” said Socialist group leader Hannes Swoboda (Austria) after the vote. “Saving is an important element of growth policy but it’s not the only one,” he said.
Also in the proposals is a balanced budget rule mirroring the one enshrined in the ‘fiscal compact’ treaty signed by 25 countries in March, an element the Commission says is essential to anchor the rules in EU law. The drafts now will now go back to Parliament’s Committee on Economic Affairs (ECON) - the plenary vote did not include a vote on the legislation itself - with MEPs aiming to find a first-reading agreement with the Council.
Guy Verhofstadt said the redemption fund was essential to avoid the splintering of the single currency.
On 23 November last year, the Commission published twin proposals on strengthening fiscal discipline for euro countries. The first was a draft regulation on “the strengthening of economic and budgetary surveillance of member states experiencing or threatened with serious difficulties with respect to their financial stability in the euro area” (COM(2011)819), which corresponds to the Gauzès report. The second was a draft regulation “on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the member states in the euro area” (COM(2011)821), which corresponds to the Ferreira report.
The first (819, Gauzès) places eurozone states under market pressure under enhanced surveillance (Articles 2-3), requiring governments to provide quarterly reports to the EU on their banking sectors and overall economic prospects and submit to quarterly EU-ECB review missions. Article 3.5 of the regulation allows a qualified majority of the Council to “recommend” a stressed state to seek a bailout, while extra monitoring will be imposed on states under bailout programmes until at least 26% of its EU loans are repaid (Article 11). States unable to implement tax, public sector or other structural reforms can request “technical assistance” (Article 6).
The second regulation (821, Ferreira) sets up a common budget making timeline for all euro states (Article 3), requiring governments to submit three-year fiscal plans to the EU by 15 April and draft budgets by 15 October, and adopt the following year’s budget by 31 December. It allows the Commission to order a redrafting of the plans if they display “serious non-compliance” with EU budget or economic targets (Article 5), and mandates governments in excessive deficit to conduct spending and statistical audits and send three or six-monthly progress reports to the EU (Article 7). Countries at risk of missing their targets will be sent a “recommendation” from the Commission (Article 8).
The Council adopted its position on the two texts on 21 February, changing only minor details. Finance ministers insisted on greater confidentiality on all national documents handled by the Commission or its Economic and Financial Committee, and insisted it should be the Euro Working Group (of 17 deputy finance ministers) and not the EFC (of 27) that should handle bailout requests. An addition to Article 6 of the report on stressed states includes the possibility of imposing a “resident representative and supportive staff” in countries that have trouble reforming their public sector. They also introduce a slightly altered timetable for budget plans (a new 30 April deadline for three-year plans) and two proposals contained in the ‘fiscal compact’ treaty, one which requires eurozone countries to send their debt issuance schedules to the Commission and Eurogroup in advance, while excessive deficit countries have to draw up ‘economic partnership programmes’.