European Parliament Votes Against Stability Pact Reforms

by Ulrika Lomas, for LawAndTax-News.com, Brussels

24 June 2005

The European Parliament has voted against the weakening of the Growth and Stability Pact's monitoring procedures agreed by the ECOFIN Council in March.

The Economic and Monetary Affairs Committee is insisting on a stricter application of the preventive arm of the Stability and Growth Pact. In a second reading vote last Monday, the committee restored amendments from the first reading of the proposals to reform the pact, all of which had been rejected by the Council in its March common position. The full Parliament is due to vote on the measure this week.

The widely ridiculed March agreement had two halves: the first half allows the European Commission more flexibility in dealing with excessive member state deficits, and the second half seriously weakened the monitoring procedures that allow the Commission to know what is going on in the first place. A number of larger member states, particularly Germany, were behind the changes, which allow deficits to exceed 3% of GNP if extra costs are to do with the 'reunification' of Europe.

Parliament couldn't do much about the first half of the proposals, which come under a consultation procedure, and have already been finally adopted by the Council; the second half - 'preventative measures' - come under the cooperation procedure, however, and if the Parliament votes it through, the Council will only be able to undo Parliament's changes with a unanimous vote, something which seems unlikely in the current bad-tempered state of relationships between EU leaders.

MEPs in the Committee agreed with proposals from rapporteur Othmar KARAS (EPP-ED, AT) to reinstate first reading amendments aimed at ensuring that budgetary statistics from the Member States are compared with those submitted by national central banks to the European Central Bank, that stability programmes covering the two years ahead are submitted annually, that the Council has the option of inviting a Member State to strengthen its programme, in particular for budgetary consolidation in economic 'good times', and that more attention is paid to the expected path of the overall government debt ratio.

If the plenary session wants to follow the committee's advice, it will need to vote by an absolute majority (i.e. at least 367 votes) to amend the regulation. The Council would then need unanimity to overrule Parliament. A complication is that the measure bringing greater flexibility to the pact can enter force immediately, while, if Parliament adopts these amendments, the measure reinforcing the preventive aspect will be delayed by at least three months, so there will be an imbalance in the reform, at least for a period.

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