ECB gives EU leaders plan to strengthen euro debt rules [fr]
The European Central Bank yesterday (22 February) openly criticised eurozone governments for moving too slowly against debt-laden countries and issued a 10-point action plan ahead of next month's summit.
On 1 December, the European Commission outlined details for a eurozone permanent strategy to help countries at risk of defaulting on their debts.
Details of the proposal were debated by European leaders at their EU summit on 16-17 December. Earlier this month (4 February), France and Germany presented plans to harmonise tax and labour policies in the euro zone, saying the crisis has exposed the necessity to complete monetary union with an economic union.
Merkel and Sarkozy have put together a working document, called the Competitiveness Pact, to get all EU countries to agree to harmonised taxation and labour policies, including upping countries' retirement age to 67.
Ireland's super-low corporate tax rate of 12.5% has drawn fire from France and other countries because it gives Irish businesses a competitive advantage.
And that is the kind of gap France and Germany want to close before agreeing to raise the ceiling of the EU's bailout fund, as demanded by many countries.
In its first official document on European Commission proposals to better enforce rules on spending and debt, the European Central Bank's (ECB) governing council said there were still too many opportunities for eurozone countries to disregard the rules and proposed a roadmap.
"The Council of the European Union should have less room for halting or suspending procedures against the member states," the ECB said, recommending that countries should have votes to determine whether or not to end sanctions.
To restore sustainable confidence on the euro, the ECB has sent political leaders a 10-point action plan ahead of their summit on 11 March to finalise the bloc's new debt rules and revamp its bailout fund.
The ECB has long been pressurising politicians to put in place stricter rules to avoid a re-run of the eurozone debt crisis, which has forced the ECB to prop up debt markets and prolong its support for the banking system.
Yesterday's list of recommendations includes demands ranging from making sanctions more automatic and removing current get-out clauses to voting on sanctions and implanting failsafe measures to stop punishments being watered down or waived.
It also urged politicians to reverse a Franco-German led move in 2005 to water down debt rules and called for them to close loopholes that offer offending countries get-out clauses.
EU leaders are set to hold several summits in March and hope to agree a comprehensive package of measures to tackle the banking-turned-sovereign-debt crisis at a summit on 24-25 March.
Earlier this month EU finance ministers indicated that they were willing to agree measures to make their economies more competitive, a core demand from Germany, if Berlin backed a strengthening of the EFSF [European Financial Stability Facility] bailout fund.
The ECB said there should also be more focus on problem countries in the new debt rules and called for a sliding scale of punishments to start clamping down on such states sooner.
"The excessive imbalance procedure should oblige member states to lodge an interest-bearing deposit following the first instance of non-compliance and should sanction them with a fine in case of repeated non-compliance," the ECB said.
It said the fines should go into the euro zone's soon-to-be-finalised bailout pot and that there should be clearer definitions of when punishments kick in and fewer opportunities for them to be side-stepped.
"As regards the deficit criterion, such (mitigating) factors should be taken into account only if the deficit ratio of the country concerned is close to the 3% of gross domestic product (GDP) reference value and deviates from this value only temporarily," reads the document, which added that as for the debt criterion, such factors should be considered only if a government debt ratio in excess of 60% of GDP is projected to decline.
The ECB's ten recommendations are as follows:
- More automatic enforcement of surveillance procedures, including new macroeconomic surveillance framework;
- Setting strict deadlines to avoid lengthy procedures and deleting "escape clauses";
- New macroeconomic surveillance framework should have clear focus on euro area countries with high budget deficits;
- Introduction of political and reputational measures fostering early compliance with surveillance framework;
- Earlier and more gradual application of financial sanctions;
- Ambitious benchmarks when establishing existence of excessive deficit;
- Ambitious requirements as regards adjustment path towards a country's medium-term budgetary objectives;
- Guaranteeing quality and independence of fiscal and economic analysis;
- Commitment by member states to swiftly implement strong national budgetary frameworks;
- Improvements to quality of annual and quarterly statistics in general government accounts, in terms of both timeliness and reliability.
- 11 March 2011: Euro-zone leaders summit
- 24-25 March 2011: European Council summit