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Commission Sets Out Vision For Greater Fiscal Union

by Ulrika Lomas,, Brussels

29 June 2012

The European Commission has recently set out its vision for greater fiscal union in the euro area.

In its statement, the Commission says: “We are in a defining moment for European integration and for the European Union (EU) as a whole. The lessons of the past have taught us that further integration within the euro area is indispensable to complete the economic and monetary union (EMU).”

It adds: “A fiscal union is one of the main building blocks required to ensure smooth functioning of our common currency. This new architecture would provide a clear vision of the future of the EU's Economic and Monetary Union and guide the reforms and decisions necessary for the euro area and its member states to tackle current challenges.”

The Commission highlights the fact that considerable progress on strengthening EU economic governance has already been made, notably in terms of the European Semester and the adoption of the so-called “six-pack” laws, aimed at strengthening the Stability and Growth Pact by increasing macroeconomic surveillance and providing for sanctions for those member states that deviate from the rules.

According to the Commission, the six-pack marks a major milestone in Europe's economic governance and crisis response as it represents a decisive step towards a functional framework to complement monetary union with a real economic union.

Turning its attention to new proposals, the Commission alludes to the “two-pack” laws, draft regulations that build on the “six-pack” rules by further strengthening the coordination of budgetary policy in the euro area.

The first draft regulation aims to further improve fiscal surveillance and budgetary monitoring and assessment by requiring euro area member states to submit their draft budgetary plans for the following year to the European Commission and the Eurogroup in October, along with the independent macro-economic forecasts on which they are based. This will allow the Commission to issue an opinion on such draft budgetary plans which will feed into the national budgetary debate, notably concerning the appropriate implementation of EU policy guidance.

In case a plan seriously breaches the EU fiscal rules, the Commission will ask the member state in question to present a revised draft budgetary plan.

The second draft regulation aims to improve surveillance of the most financially vulnerable euro area member states.

The "2-pack" is currently being scrutinized by both the European Parliament and the Council of Ministers. The Commission is working towards a fast approval of an ambitious version of its draft laws.

Other plans include implementation of the fiscal treaty, signed by twenty-five of the twenty-seven EU member states in March, and aimed at ensuring greater fiscal discipline. In accordance with the plans, if a country does not properly implement the new budget rules in national law and fails to comply with a European Court of Justice (ECJ) ruling that requires it to do so, the ECJ can impose financial sanctions.

The treaty is currently in the process of ratification by member states.

Other proposals currently under discussion and aimed at significantly deepening EMU include plans to issue European Stability Bonds to mutualize public debt.

The Commission states that:

“Recent years have seen an unprecedented strengthening of coordination of economic and fiscal policies at EU level. This has been accompanied by an expression of solidarity to support financially vulnerable euro area countries through the building-up of the euro area's firepower in the form of the EFSF, and the ESM (which should be effective in July).”

“The renewed intensification of the sovereign debt crisis demonstrates the need to build further on these achievements, and map out the main steps towards full economic union, to complement and strengthen the existing economic and monetary union, as the European Commission has advocated and implemented in the past years.”

“A fully-fledged economic union would require more decisions taken at European level when it comes to public expenditure, revenues and borrowing, and thereby a higher degree of political integration. This should obviously entail commensurate steps that ensure democratic legitimacy and accountability.”

TAGS: tax | economics | European Commission | fiscal policy | law | budget | currency | regulation | European Union (EU) | Europe

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