1. 1 The 6-pack: tools for a stronger Economic Governance

2. 2 2 Fiscal surveillance - Revisions to both the preventive arm and the corrective arm of the Stability and Growth Pact - New Directive on national fiscal frameworks Macroeconomic surveillance New regulation on prevention and correction of macroeconomic imbalances Enforcement New regulation on effective enforcement of budgetary surveillance Enforcement New regulation on effective enforcement of macroeconomic surveillance 2 legs + 1 common foundation = 6 legislative proposals

3. 3 Where do we stand? Central concept of the Stability and Growth Pact is the medium-term budgetary objective (MTO) = a numerical value for the structural deficit which ensures: (i) a safety margin against breaching 3% of GDP; (ii) sustainable public finances or rapid progress towards sustainability (iii) room for stabilisation over the cycle Adjustment path towards MTO = 0.5%; more in good and less in bad times. Enforcement through peer pressure (Council recommendations). Fiscal surveillance: Reinforcing the preventive arm What are the current difficulties? Central concept is based on the structural balance which is not observable difficulties with estimates, time-lag, etc… Enforcement through peer pressure lacks teeth

4. 4 Innovation: an expenditure rule = operational guidance for adjustment path towards MTO Def: expenditure growth should not exceed a reference rate of potential GDP growth If significant deviations from the rule = 0.5% of GDP in one or 0.25% of GDP in two consecutive years recommendation + interest-bearing deposit for euro area MS Faster adjustment path (>0.5%) if debt > 60% of GDP or pronounced risks in overall debt sustainability Safeguard clauses: can deviate from the rule if unusual event or severe economic downturn for the euro area or the EU as a whole Fiscal surveillance: Preventive arm What would change in practice?

5. 5 Where do we stand? The core concept is to tackle gross policy errors: - government deficit in excess of 3% - government debt ratio in excess of 60% of GDP or not sufficiently diminishing towards the reference value. What are the current difficulties? No definition of the concept of sufficiently diminishing debt EDP only launched on the basis of deficit criterion Fiscal surveillance: More focus on debt in the corrective arm Innovation: more focus on debt + numerical benchmark EDP can be launched if deficit below 3% of GDP but debt ratio in excess of 60% of GDP and non- diminishing at satisfactory pace Definition of satisfactory pace by a numerical benchmark = differential with respect to the 60% of GDP reference value declines over 3 years in the order of one- twentieth per year. No-automaticity: Non-respect of numerical benchmark for debt will not automatically result in EDP: decision will involve assessment of all relevant factors. Transition period for countries in EDP: 3 years

6. 6 Fiscal surveillance: More effective enforcement mechanisms Where do we stand? No enforcement mechanism in the preventive arm. Sanction in the corrective arm but very late in the procedure (Art 126(11)) Cohesion Fund commitments conditional on compliance with effective action in EDP (Art 126(8)) but only to a subset of Member States. Never applied so far! Innovation: timely, graduated and effective mechanisms for compliance New sanctions for euro-area MS both in the preventive and the corrective arm. Preventive arm: interest-bearing deposit in case of significant deviations from expenditure rule Corrective arm: (i) non-interest-bearing deposit when EDP is opened (Art 126.6); (ii) fine in case MS do not take effective action to correct excessive deficit (Art 126.8). Reverse QMV voting: Commission proposal for sanctions adopted unless the Council rejects it. Size of the sanctions: 0.2% of GDP Fines collected assigned to stability mechanisms to provide financial assistance.

7. 7 Fiscal surveillance: national fiscal frameworks better reflecting EU framework Where do we stand? Considerable variation in the quality of national fiscal framework Well-designed fiscal frameworks can substantially contribute to sound fiscal policies EU budgetary framework insufficiently entrenched in national frameworks Need for strengthening national ownership and having uniform requirements as regards the rules and procedures forming the budgetary frameworks of the MS Innovation: minimum characteristics for national budgetary frameworks Accounting and statistical reporting Rules for preparation of the forecasts for budgetary planning Country-specific numerical fiscal rules Budgetary procedures Medium-term budgetary frameworks Independent monitoring and analysis Regulation of fiscal relationships between public authorities across sub-sectors of general government Implementation by end-2013

8. 8 The prevention and correction of macroconomic imbalances (EIP) A regulation enhanced and broader macro- economic surveillance for all Member States focussing on macroeconomic imbalances. –preventive arm to avoid the build-up of imbalances –corrective arm with strong enforcement mechanisms for euro area members where spill-overs are stronger A Regulation with enforecment measures for non- compliances (Euro-area only)

9. 9 Alert mechanism Commission present report based on scoreboard indicators and economic reading identify Member States where potential risks exist ECOFIN/Euro group discuss for the Commission to take account of. In-depth review Commission prepares in depth country studies, using much wider set of indicators and analytical tools, and takes account of - other Council recommendations - plans in SCP/ NRPs; -warnings or recommendations from the ESRB. No problem Procedure stops. Imbalance exists Commission/Council recommendations under Article 121.2 Severe imbalance Commission/Council recommendation on the existence of an « excessive imbalance » under article 121.4 The preventive arm of the EIP

10. 10 Commission/ Council: assess corrective action plan (CAP) within 2 months Sufficient CAP Commission/Council recommendation endorsing CAP listing corrective actions and the deadlines for taking them (*) Insufficient CAP Commission/ Council recommendation inviting Member States to submit new CAP within 2 months as a rule Commission/Council: -Assess corrective actions in monitoring reports / assess CAP Sufficient actions: Council place EIP in abeyance and monitoring continues according to agreed deadlines Insufficient actions: Commission/Council adopt decision on non- compliance and a recommendation setting new deadlines for corrective action Imposition of interest- bearing deposit Sufficient CAP: Endorsement of actions and start of monitoring (see *) Insufficient CAP: Commission/Council adopt second successive decision on insufficient CAP. Imposition of fine Member State: submits monitoring reports on corrective actions based on agreed reporting deadlines Member State: Submits new CAP Commission/Council: -Assess corrective actions in monitoring reports / CAP Sufficient: Council place EIP in abeyance and monitoring continues according to agreed deadlines Insufficient Commission/Council adopt second successive decision on non-compliance Interest-bearing deposit becomes fines The corrective arm of the EIP

11. 11 Next steps Finalisation of legal texts Finalisation of the design of the initial scoreboard of early-warning indicators Implementation of the EIP as part of the European Semester starting with a first Alert Mechansim Report