The European Union moved closer to completing a framework for tougher controls on spending by euro-area governments in a German-led bid to prevent a repeat of the debt crisis that increasingly threatens the single currency.
The European Parliament today voted to let the EU screen the budgets of nations earlier and monitor more closely countries such as Italy where rising borrowing costs threaten financial stability. The assembly also approved tighter EU fiscal surveillance of nations such as Greece, Ireland and Portugal after they exit rescue programs.
The two pieces of draft legislation complement 2011 laws that granted the EU stronger powers to sanction spendthrift euro countries. The latest rules, which the EU’s national governments must still endorse, also follow a new European treaty aimed at limiting budget deficits.
“The serious economic and social consequences being experienced today by certain member states could have been avoided if early, targeted, action could have been taken,” said Jean-Paul Gauzes, a French member who helped steer the new rules through the 27-nation Parliament in Strasbourg, France.
Struggling to contain the two-year-old debt crisis, Europe is wrapping up decisions on closer fiscal surveillance while starting to examine ways to kick-start economic growth weakened by the budget-austerity drive. A June 28-29 meeting of EU leaders is due to address the scope for growth-boosting initiatives within the deficit-cutting context.
Spain on June 9 became the fourth euro-area nation to seek a bailout since the start of the region’s debt troubles with a request for as much as 100 billion euros ($125 billion) to rescue its banks. That followed 386 billion euros in international loan pledges to Greece, Ireland and Portugal since May 2010 and put Italy next in line for a possible rescue.
At the same time, risks are growing that Greece will be forced out of the single currency after an inconclusive May 6 election that catapulted into second place a party opposed to budget-austerity accords tied to the country’s emergency aid. Another Greek poll is due on June 17.
Luxembourg Prime Minister Jean-Claude Juncker said on June 7 that the euro area is in a “real stress moment” and national governments in Europe must accept greater integration to overcome the debt crisis.
“These are crucial days and weeks,” said Juncker, who also leads the group of euro-area finance ministers.
The new package of more-intrusive EU fiscal surveillance of countries would let the European Commission examine their draft budgets before approval by national parliaments. Annual spending plans would have to be submitted to the Brussels-based commission, the EU’s regulatory arm, by Oct. 15 the previous year.
In addition, the commission would gain the right to closer oversight of euro nations facing growing financial difficulties through “regular review missions.” Such a step would institutionalize an informal practice under which, for example, the EU last year dispatched experts to Rome to monitor Italian budget progress.
Furthermore, euro-area countries emerging from aid programs would be subject to a new surveillance system under the draft legislation.
The commission proposed the draft legislation in November, when its president, Jose Barroso, said that “without stronger governance in the euro area, it will be difficult if not impossible to sustain a common currency.”
In giving its backing today, the EU Parliament also added amendments that will face resistance by national governments, which reached a tentative accord among themselves in February. A final EU deal requires the assembly and the governments to iron out differences during negotiations that will take place over the coming weeks.
One Parliament amendment would establish a European procedure for legal protection for a country at risk of defaulting -- a proposal that follows euro-area policy zigzags over Greece that ended with the country carrying out the world’s biggest writedown of privately held debt earlier this year.
Under this Parliament-drafted provision, a decision to place a nation under legal protection would render standard default practices inoperative, freeze loan interest rates and give creditors two months to make themselves known to the commission or forfeit their claims.
A second amendment introduced by the 754-seat assembly would move euro-area governments in the direction of debt sharing by establishing a European redemption fund based on joint liability. Under this proposal, countries would transfer debt exceeding the EU’s threshold of 60 percent of gross domestic product into the fund, with this portion being paid back over 25 years as governments pursued budget consolidation and took steps to boost economic growth.
“This would provide breathing space for countries to carry out difficult structural reforms and would also help to break the spiral of high interest rates, higher debt and less growth,” the EU Parliament said.
The amendment is modelled on a proposal by economic advisers to German Chancellor Angela Merkel, who is reconsidering her rejection of the idea last year amid support for it by opposition parties in Germany.