Transcripció de les entrevistes 41

The proposal for a Regulation on monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficits of the Member States in the euro area sets out graduated steps and conditions that reinforce the monitoring of national budgetary policies. The main features of the Commission proposal are set out in this Subsection.

A Common Budgetary Timeline for the euro area

All Member States of the euro area will follow a common timeline, as well as common rules,

regarding their budgetary procedures. These new requirements aim to complement the European Semester so as to ensure a good integration of the European Union policy guidance in the national budgetary process and to allow taking a view of the euro area as a whole (see Graph II.4.1). Experience has shown that effective planning plays a key role in ensuring sound public finances, in

particular when it allows the ex ante identification

of any risk of gross errors and thus prevents them from occurring.

In addition, euro area Member States need to take into account the fact that their budgetary plans may potentially trigger spillover effects on the other countries sharing the same currency. Therefore, a first step in reinforcing the preventive aspect of

Box (continued)

time and/or maturity of such common issuance. Main examples of such more limited approaches include (1) common issuance based on several guarantee only; (2) time-limited common issuance based on joint and several guarantees in the form of a debt redemption fund as proposed by the German Council of Economic Experts, or (3) common issuance only of short-term debt with a maturity of up to 1 to 2 years, so- called"Eurobills" / "E-bills".

The latter proposal has attracted the most significant attention. As all other proposed instruments, E-bills involve specific advantages and disadvantages. However, while aiming for a crisis management tool the benefits of common issuance of short-term debt seem to exceed the negative consequences. E-bills would contribute to financial market completion by providing a larger supply of short-term securities markets of sufficiently high credit quality. Until now markets for T-bills, commercial paper and certificates of deposit are relatively underdeveloped in most Member States. Eurobills could moreover strengthen financial stability insofar as they would assure a ready supply of short-term liquidity for all euro area Member States. Compared to long-term bonds, the potential exposure of Member States to E-bills under joint and several guarantees would be reduced in volume and time. This is mainly due to the smaller size of the government bill markets and the lower average maturity of bills. The common issuance of short-term securities would also seem beneficial for the conduct of monetary policy in the euro area, as the transmission channels would be strengthened and harmonised. Finally, some of the more technical issues to be solved for commonly issuing long-term bonds (i.e. trading venues or maturity profiles), would be smaller for issuing short-term paper only. Nevertheless the limits of Eurobills need to be considered. Unlike for long-term bonds, collective gains in liquidity premia would be extremely limited, as bills are typically not traded, but purely bought and held. Effects on market integration and efficiency would equally be restrained. Furthermore, euro area Member States' current reliance on T-bills in overall issuance differs widely. This would complicate the introduction of Eurobills, including an agreement on aggregate limits. In addition, it should be avoided that, by creating a particularly attractive short-term instrument, a bias towards short-term issuance appears, particularly in vulnerable Member States. This could lead to very serious rollover risks over the medium term. As is the case for the issuance of common bonds, care would also need to be taken to ensure that an introduction of Eurobills does not breach the no bailout condition enshrined in the TFEU under Article 125.

Still, E-bills should be considered as a possible crisis management tool, as they are more flexible and more easily manageable. As they are of short-term nature their issuance can relatively easily been phased out in the event they lead to unwarranted consequences. While, when successful they could become a stepping stone for other forms of common issuance.

European surveillance is to ensure a better synchronisation of the key steps of the budgetary procedure. Sharing a common budgetary timeline should help Member States exchange relevant information and follow the budgetary procedures of their counterparts in a transparent manner, and so facilitate synergies. This will reinforce the effectiveness of the European Semester, organised for the first time in 2011, and which is premised on the same rationale which is that the EU Member States need to coordinate better their budgetary and economic processes in line with common objectives, building on Commission and Council recommendations.

This common budgetary timeline is organised around three milestones:

By 15April: the fiscal plans in accordance with the national medium-term budgetary frameworks are made public.

Each Member State must prepare a national medium-term budgetary framework and publish it alongside its Stability Programme that is submitted to the Commission and the Council, in accordance with the preventive arm of the SGP.

As a starting point, the information to be presented in the national medium-term budgetary framework should encompass all the data required in the Stability Programme; however, the Member State may decide that this national document might go further either in the horizon or in the coverage of the medium-term budgetary strategy that it sets out.

By 15 October: The draft budget is made public, together with the macroeconomic forecasts on which it is based;

The draft budgetary plans for the general governments are made public and submitted to the Commission and the Eurogroup.

The submission of draft budgetary plans is intended to mirror the procedure of the Stability Programmes, but with focus on the following year. This new milestone will be specific to the euro area, acknowledging the need for an enhanced synchronisation of the budgetary policies of Member States sharing the same currency.

By 31 December: Budget Laws are adopted and made public.

Finalising all countries' budgetary processes in a synchronised manner should eliminate any uncertainty possibly linked to the forthcoming budgetary plans of the euro are Member States and enhance the transparency both across countries and towards external observers.

Common Budgetary Rules for euro area Member States

Building on the same rationale as the Directive on national budgetary frameworks adopted in 2011 presented in Section II.3, the proposal for a Regulation on enhanced budgetary monitoring sets out more precise requirements for euro area Member States. The new rules are therefore additional to the provisions of the Directive on national budgetary frameworks which should be transposed in all Member States by end-2013. There is strong evidence showing the effectiveness of rules-based fiscal frameworks in supporting sound and sustainable fiscal policies. The introduction of national fiscal rules which are consistent with the European framework is important to ensure that Member States are equipped to abide by their obligations under the SGP.

While the directive on national budgetary frameworks requires EU Member States to have numerical fiscal rules in place to promote

compliance with EU obligations(72), the proposed

regulation proposed more explicitly requires euro- area Member States to enshrine the medium-term budgetary objective (MTO) in their national budgetary process. At least for euro area Member States, the approval of this provision would allow transposing in secondary legislation the core commitment of the Contracting Parties of the

intergovernmental Treaty on Stability,

Coordination and Governance in the Economic and Monetary Union (TSCG), signed on 2 March 2012 (see Chapter II.5). The binding nature of such national rules would demonstrate the strongest commitment of national authorities to meet their

(72_{) The UK is exempted from this provision, in view of its} special Protocol annexed to the Treaties.

obligations deriving from the preventive arm of the SGP, too often neglected in the past.

Ensuring that all Member States of the euro area have high-quality budgetary processes is another safeguard to help them meet the strengthened requirements and ensure a sound management of their public finances. The first area concerned by these new common budgetary rules is the reliability of the forecasts on which Member States base their budgetary plans, be they the national medium-term fiscal plan or the draft budget for the forthcoming year. Indeed, in the absence of realistic and unbiased forecasts, the link between budgetary planning and execution is weakened and Member States are likely to miss the targets foreseen in the plans. In particular, as the revenue projections are based on the level and composition of economic growth, overly optimistic GDP forecasts will leave the government unable to respect its budgetary targets for revenues and hence, for the overall budget balance. The directive asks the macroeconomic and budgetary forecasts to be realistic and subject to a regular evaluation. The proposed regulation requires fiscal plans of euro area Member States to be based on independent macroeconomic forecasts.

In addition, according to the Commission proposal euro area Member States should rely on independent fiscal bodies for the monitoring and implementation of national rules, in particular, of rules ensuring compliance with the MTO. The directive does not strictly require national independent bodies to monitor fiscal rules. However, it envisages that monitoring of numerical rules should be based on analysis carried out by independent bodies

New reporting requirements in order to improve the monitoring of Member States' budgetary policies

An enhanced monitoring of budgetary policies in the euro area exerted at the European level and based on a reinforcement of existing processes for budgetary and economic surveillance, has been deemed necessary to take account of the fact that national economic policies of Member States are a matter of common concern – particularly in the case of countries sharing a single currency. This implies greater awareness and interest by national

parliaments and stakeholders in the EU-level perspective.

The new Regulation, builds upon the European Semester by introducing a new exercise to be conducted in the autumn, when the budgetary plans of Member States of the euro area will be assessed. This new exercise would involve only the forthcoming budgetary year, as opposed to the European Semester, which considers budgetary plans and policies over the medium run. By taking into account one budgetary year only, just ahead of the adoption of the Budget by the National Parliament, this new milestone should allow a more targeted and more relevant intervention into national budgetary processes, thus reinforcing substantially the preventive function of the SGP. By requiring the submission by Member States of their draft budgetary plans by 15 October, the

Regulation enables the Council and the

Commission to examine the national draft budgets of all euro area Member States, both individually and with an overall view on the forthcoming fiscal stance in the euro area.

In addition, the Eurogroup will hold a discussion on the fiscal prospects for the euro area for the forthcoming year, on the basis of the assessment of the draft budgetary plans undertaken by the Commission.

The Regulation lays down the required information which is expected to be provided by Member States in their draft budgetary plan (see Box II.3.2). This information, provided following the common European accounting standards (ESA 95), in order to be fully comparable across Member States, will ensure horizontal consistency in the assessment and to allow the framing of a euro area-wide picture of fiscal positions. Indeed, the information required has been selected in order to provide a comprehensive overview of the fiscal position of each Member State over the forthcoming year. The proposal presented on 23 November envisages that the specific content and the format of the draft budgetary plans is to be established by the Commission.

There are two potential steps that the Commission might decide to undertake on the basis of the draft budgetary plans. First, in exceptional cases of serious non-compliance of the budgetary plan with

the obligations of the Member States deriving from the SGP, the Commission will be able, within two weeks from the date the Member State submitted its programme, to request a revised draft budgetary plan. In particular, this would be the case where the implementation of the initial budgetary plan would put at risk the financial stability of the

Member State concerned or would risk

jeopardising the good functioning of the EMU, or where the implementation of the initial budgetary plan would entail an obvious significant violation of the recommendations formulated by the Council under the SGP.

In addition, the Commission may adopt an opinion on a Member State's draft budgetary plan, after having properly assessed it. This opinion will be given as soon as possible, with a maximum deadline established in the Commission proposal at 30 November. The objective is to transmit this information to the Member State concerned before the plan is adopted by the National Parliament, inviting the budgetary authorities to take it into account in the process of the budget law adoption. The Commission would then stand ready to present its opinion to the national Parliament at its request.

This new role of the Commission is one of information and monitoring, and there is no transfer of sovereignty away from the Member States, which remain fully competent on deciding on their budgets. The final budget Law is adopted by the National Parliament in full respect of its prerogatives. It is clear that countries will need to respect European requirements on their public finances when setting their budgetary plans if they want to avoid that the Commission requests a new budgetary plan; but these requirements are already set in the Treaty and the SGP and this new exercise is only meant to enhance the dialogue between the Member States and the European institutions and among themselves. The Regulation on enhanced monitoring therefore adds to the national rules and scrutiny of Member States' policy making but does not place additional requirements on the policies themselves that should have anyway been in compliance of the requirements recalled in Chapter II.2.

In addition, any Commission Opinion issued on the draft budgetary plan of a Member State may help inform any subsequent decisions about

whether this Member State should be placed in an Excessive Deficit Procedure; the Opinion will be formally taken into account in the steps leading the opening of the procedure. More precisely, the extent to which this opinion has influenced the final budget should be part of the assessment, where no follow-up to the early guidance from the

Commission should be considered as an

aggravating factor.

Finally, The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) described in Chapter II.5 acknowledges the necessity to enhance coordination on the budgetary side by also increasing the exchange of information concerning debt management. The objective is to ensure that each national debt manager benefits from useful information about broad parameters of debt issuance by other debt managers in the euro area. The Commission proposal for this Regulation could be amended accordingly to foresee a regular reporting by

Member States on their ex ante debt issuance

plans.

Of course, possible gains, deriving from increased transparency and predictability of funding plans to all sovereign debt issuers in the euro area, have to be weighed against the imperative and justified needs of flexibility and confidentiality of issuing policies and procedures.

This reporting could be built on existing mechanisms and frameworks for information sharing across Member States on their debt issuance. For instance, the Economic and Financial Committee's Sub-Committee on EU sovereign debt

markets (ESDM), primarily composed of

representatives of Member States' debt

management offices, could constitute an

appropriate forum for such consultation and cooperation. The ESDM has been established for a number of years and has started to implement ad- hoc codes on monthly reporting of national debt issuance. Existing processes could therefore allow Member States to comply with what is now set as a legislative requirement.

A closer monitoring of progress by euro area Member States under the Excessive Deficit Procedure (EDP)

While the enhancement of the monitoring of national budgetary policies for all Member States of the euro area reinforces the preventive aspect of

European surveillance, the new proposed

Regulation also includes provisions to increase the effectiveness of its corrective part. The corrective arm only concerns Member States which have already breached the rules governing either the deficit level or the pace for debt reduction, and which, as a consequence, are subject to an Excessive Deficit Procedure (EDP). The fiscal position of such Member States being particularly fragile, it becomes a matter of common concern for the euro area as a whole. It is therefore the responsibility of the EU to put in place tighter requirements to ring-fence the budgetary fragilities and ensure an effective and durable correction of budgetary slippages.

Enhancing the effectiveness of the monitoring exerted at the EU level in the framework of the EDP means ensuring that Member States concerned take sufficient and effective action, so that their excessive deficit is corrected within the specific deadline set by the Council. The SGP already foresees that concerned Member States would submit a progress report to the Commission and the Council. This report presents the action taken by the Member State to correct the excessive deficit (Article 3(4a) of Regulation 1467/97) within the six months (at the latest) following Council recommendations issued in accordance with Article 126(7) TFUE (see Table II.4.1). It is on the basis of the information provided in that

report that the Council decides, on a

recommendation by the Commission, whether effective action has been taken.

However, experience has shown that a closer monitoring of budgetary developments and of the corrective action undertaken, over and above this existing report, would be instrumental in ensuring

Box II.4.2: Extract from Article 5 of the proposed Regulation on enhanced monitoring:

Information to be presented by Member States in their draft budgetary plan

The draft budgetary plan shall contain the following information for the forthcoming year:

(a) the targeted budget balance for the general government as a percentage of Gross Domestic Product (GDP), broken down by sub-sector of general government;

(b) the projections at unchanged policies for expenditure and revenue as a percentage of GDP for the general