Closer
Coordination of Member States' Economic and Budgetary Policies
Elements in the Coordination Process
The third element
of EMU is closer co-ordination of the economic and budgetary policies of
the Member States. There are a number of different parts to this process.
In addition to the regular meetings of ECOFIN, these include the Stability
and Growth Pact; structural reform initiatives, such as the Luxembourg
process, the Cardiff process and the annual Broad Economic Policy Guidelines;
and the meetings of the Euro-11 Group of Ministers.
The Stability
and Growth Pact
The Stability and
Growth Pact is based on Articles 103 and 104(c) of the Maastricht Treaty.
It consists of the Resolution of the European Council on the Stability
and Growth Pact of 17 June 1997³ and Regulations
(EC) Nos 1466/97 4
and 1467/975, both
of 7 July 1997. The Pact requires Member States in EMU to commit themselves
to aim for a medium-term budgetary position of close to balance or in surplus.
The rationale underlying the Pact is that in favourable economic
times Member States should so manage their budgets as to ensure that they
can, over the course of a normal economic cycle, reliably keep under the
3 per cent ceiling on budget deficits prescribed in the Treaty. Such Member
States, including Ireland, have to present stability programmes, which
will specify their medium-term budgetary objectives, together with an adjustment
path for the deficit ratio and the expected path for the debt ratio. Member
States not in EMU have to present convergence programmes, with contents
similar to those of stability programmes. These stability and convergence
programmes are examined by ECOFIN. Both stability and convergence programmes
are made public and are updated annually.
The Pact also provides
for the clarification and speeding up of the excessive deficit procedure
set out in Article 104(c) of the Treaty. Briefly, ECOFIN and the European
Commission will monitor the performance of Member States in the context
of their stability and convergence programmes with a view to giving early
warning of any significant deterioration which might lead to an excessive
deficit. In such cases, ECOFIN will address recommendations to the Member
State concerned.
If, not withstanding
the early warning precautions, an excessive deficit does arise in a Member
State in EMU, then ECOFIN may decide to give notice to the Member State
concerned to take deficit reduction measures judged necessary by ECOFIN
to remedy the situation. If the excessive deficit persists, and the Member
State has failed to comply with the notice, then ECOFIN will, in accordance
with Treaty Article 104c (11), take a decision on the imposition of sanctions
on a prescribed scale.
Whenever sanctions
are first imposed, a non-interest-bearing deposit will be included. This
will be converted into a fine after two years if the deficit continues
to be excessive. Where the deficit results from non-compliance with the
deficit reference value, the amount of the deposit or fine will be made
up of a fixed component equal to 0.2 per cent of GDP and a variable component
equal to one-tenth of the excess of the deficit over the reference value
of 3 per cent of GDP. There is an upper limit of 0.5 per cent of GDP in
respect of any single deposit.
