EU member states have been warned once again that the European Commission intends to strictly implement new economic governance rules “from day one” to ensure that targets for the reduction of national deficits and debts are kept.
Speaking to Germen businessmen, European Economic and Monetary Affairs Commissioner Olli Rehn reiterated his pledge to closely monitor member states particularly those in the euro area.
“Rest assured that I will make full use of the new instruments of economic governance from day one of their entry into force. We cannot afford to tolerate a breach of jointly agreed rules by anyone anymore. We have seen, only too concretely, that it happens at the cost of other member states.”
Malta is one of the member states on Mr Rehn’s radar even though the country has already said that it will be meeting its deficit reduction target by the end of this year.
Two weeks ago, Mr Rehn sent a letter to Malta and another four member states reminding them about their obligations to correct their deficits and gave them until mid-December to make the necessary changes.
According to an Excessive Deficit Procedure started against Malta in 2009, the island had until the end of this year to get its deficit to under three per cent of GDP. According to the Commission’s projections this might not be the case. However, the government is insisting that Malta will reduce its deficit to 2.8 per cent by the end of this year.
The new economic governance package approved by member states now allows the European Commission to impose sanctions on those member states breeching the rules underpinning the euro. In his speech to German business leaders Mr Rehn also shed light on other Commission plans to continue to tighten the rules on economic governance.
He said that a stability culture must now be the focus of future changes to economic governance in the eurozone even though public spending cuts, while necessary, will not in themselves get economic growth in Europe back on track.
Shedding light on two new regulations being proposed by the Commission, Mr Rehn said that countries with a budget surplus will now be required to introduce budget rules aimed at a balanced budget and medium-term consolidation of public finances. He said such rules will cover all of central government and be binding, preferably added to a country’s constitution, referring to the “golden rule” that reins in debt in Germany.
Also, independent national budget committees should be set up, with the coordination of national budget cycles supplemented at EU level by scrutiny over national budgets for the following year, which should be submitted to the Commission by mod-October of the previous year.
The second proposal will focus on the weakest eurozone countries, such as the ones in receipt of international aid, in order to boost the monitoring of their budget and economic reform programmes that are a condition attached to the financial aid.
Mr Rehn said that the recent suggestion by economic advisors to the German government deserved serious analysis and further study. They suggest that countries whose debt is greater than 60 per cent of their GDP should pool and guarantee the section over 60 per cent in a Redemption Fund, which they would be able to pay off within 20 or 25 years if they promise to introduce drastic economic reforms.
Mr Rehn said the idea struck a balance between the pooling of debt over an unlimited period and strict budget control programmes.