EURO DEBT CRISIS:EUROPEAN COMMISSION chief José Manuel Barroso urged euro zone leaders to back a new drive to rapidly intensify Europe's oversight of their national budgets and said any failure to do so would threaten the existence of the single currency.
The commission is seeking sweeping new powers to demand revisions to draft national budgets before they are adopted by parliaments, and additional measures to scrutinise the affairs of countries whose budgets may be coming under pressure.
“The crisis has shown that without stronger governance in the euro area it will be difficult if not impossible to sustain a common currency,” Mr Barroso told reporters in Brussels as he unveiled the plan. “I think that now all member states, at least in the euro area, they recognise the need for stronger governance and more discipline.”
The commission’s latest initiative includes a study on the feasibility of issuing national eurobonds with the backing of a common euro zone guarantee, something long-resisted by Berlin.
Although that is a necessarily a longer-term project, the commission wants euro countries to quickly adopt new measures to deepen the integration of their economic policy.
According to Mr Barroso, the plan would not fly if there was no crisis. “This is exactly the time to advance with proposals for member states to accept what, frankly speaking, it will be very difficult to accept in good times,” he said. Mr Barroso said such proposals can be introduced within the scope of article 136 of the European treaty, which empowers the EU authorities to introduce measures specific to euro zone countries.
The initiative includes measures which would see bailout recipients such as Ireland subjected to close scrutiny for years after the Irish EU-International Monetary Fund programme comes to an end in 2013. Even deeper oversight is foreseen in a scenario in which eurobonds – or “stability bonds” – are introduced.
Under the current proposal, the members of the single currency will have to produce a draft budget setting tax and spending measures by October 15th each year.
The plan, still subject to the approval of member states and MEPs, will give the commission the power to request an alternative budget within a fortnight if officials identify “particularly serious non-compliance” with EU budget rules. While the commission insists it is not seeking the right to veto national budgets, it said any adverse opinion on draft budgets will be presented to the parliament of the member state concerned to aid political debate.
France has pushed to operate any increased co-ordination of economic policy in an intergovernmental system operating outside the ambit of EU law.
However, Mr Barroso suggested member states cannot be trusted to operate such a system on their own. He said the commission should be at the centre of such scrutiny and that was the will of European parliaments.
“The alternative would be maybe to create new institutions which in principle would be more vulnerable to pressure, first of all, or we could just leave this up to the free discretion of member states,” he said. “We know that in these areas, with all due respect for governments, we cannot leave matters like surveillance and enforcement to the member states alone because there’s a knee-jerk political reaction: ‘You scratch my back and I’ll scratch yours.’”
The new process was fully democratic, he insisted. “If the parliaments decide to ratify a treaty giving some powers to common institutions, those institutions are democratically entitled to use that competence,” he said.
“The message that markets and investors are giving – it’s of course about the debt, it’s of course about the deficits. But it’s also, of course, stronger governance and discipline.”
EC Budget Aims: What commission president Jose Manuel Barroso said
On euro bonds:
“We are launching the debate. At this moment, the Commission has not yet decided on the preferred approach. We believe it is better to put those different options, in what I believe is a very objective way, based on sound analysis, to (a) public consultation, including of course all our member states, but also the citizens of Europe, the experts (and) the different elements of our civil society.
On the future role of the ECB:
“Reality is of course the teacher, but in the European Union we are a community based on the rule of law. We cannot go against the rules of law and our own principles. And the ECB has to act in a framework of the treaty.
As you know, we fully respect the independence of the ECB. We believe it is critically important for the credibility not only of the ECB, but also of the euro and the euro area, and we are confident the ECB will take all the necessary measures to guarantee, of course, not only price stability but also financial stability. As they have been doing.
On budget proposals:
“Under the new rules, the Commission will have greater surveillance powers, so that we do not face again the situation where failing in one country endangers the stability of the euro area as a whole.
National budgets will of course be prepared by governments and voted on by national parliaments. Parliaments will of course have the final say.
The difference with the current system is that the Commission will have the right to issue an opinion and may request changes. National parliaments will for the first time have the full information on all other countries in the euro area.
