Economic Governance

Due to the fiscal impact of the global financial and economic crisis deepening during the course of 2008-2009 and the Greek budgetary problems, Member States of the European Union decided to take an unprecedented step: they agreed to harmonise their economic policies in the future, thus creating the “economic governance” of the Union. One of the most important tasks, therefore, of the Hungarian Presidency is to continue, in close cooperation with the Commission and the European Council, the Council debate on the six legislative proposals submitted by the Commission, and to reach a conclusion by the summer of 2011. The development of the permanent crisis management mechanism of the Euro area appears as a separate task, which also requires the amendment of the treaty.

BACKGROUND

The European Council, comprised of Heads of State and Government, established a Ministerial Level Task Force in mid 2010 to develop proposals on strengthening the coordination of economic policies that had become indispensable due to the crisis. The ideas of the Task Force, chaired by permanent President Herman Van Rompuy, were taken into consideration by the legislative package of the European Commission presented on 29 September 2010.

The objective of the six legal regulations proposed by the Commission is to achieve the automation of the new economic political cooperation, and the attached sanctions, following specific regulations. The proposal reinforces existing instruments and extends their impact on economic coordination and budgetary policy. The European Council meeting on 28–29 October accepted the Task Force report and agreed on the necessity of establishing a permanent crisis management mechanism. That requires a limited amendment to the Treaty of Lisbon, whose details are to be worked out by the European institutions. The efficient operation of the new economic political coordination will be aided by the European Semester cycle.

THE HUNGARIAN PRESIDENCY

Following the identification of the problems, the first half of 2011 will be the time for decisions. The primary EU priorities are re-establishing confidence, sustainable development and the growth of employment and competitiveness. The Hungarian Presidency believes that in order to promote economic governance it is the joint task of Member States to reach an agreement on the legislative proposals set forth in September 2010 by the summer of 2011, taking into consideration the contents of the report of the Task Force chaired by Herman Van Rompuy and the decisions of the European Council meeting of December 2010.

The initiatives target the increase of budgetary discipline, the extension of economic supervision, the deepening of cooperation, the establishment of a permanent crisis management framework and the strengthening of the institutions. The Hungarian Presidency cooperates with the Permanent President of the European Council and the President of the Commission in working towards the establishment of a permanent crisis management mechanism, in concurrence with the decisions of the European Council, with special regard to the possibility of the limited amendment to the Lisbon Treaty that is required for implementation.

The results of the work of the Task Force and the proposals of the Commission are summarised in the following five items:

Comprehensive Macro-economic Supervision

The excessive imbalance procedure will be introduced besides the currently applied excessive deficit procedure. The two main measures of the new procedure are the annual evaluation of macro-economic imbalances and the enforcement of measures (adjustment phase).

Strengthening Budgetary Discipline with Stronger Stability and Growth Pact

During the procedure related to the Stability and Growth Pact, in the future not only the budget deficit, but also the level of state debt will be monitored by the European Commission, and sanctions will be imposed almost automatically in the case of those exceeding the threshold values.

Deeper and Wider Coordination

In the interests of tighter coordination, as of 2011 a new economic and budgetary timetable, the European Semester, will commence. Within that, the Member States submit their stability and convergence programmes and national reform programmes simultaneously. On the basis of these, the Commission issues recommendations broken down by country, which the Member States shall consider when planning their national budgets.

Permanent Crisis Management System

In order to ensure the proper operation of the Euro Area, a permanent crisis management mechanism is required that is capable of managing financial difficulties and preventing infections. The permanent, preliminary crisis management framework system would only cover the Euro Area.

Stronger Institutional System

The Task Force urges the establishment of independent institutions at national level that would prepare independent analyses, evaluations and forecasts related to the economic policy of the member state. The recommendation of the European Commission also includes the strengthening of national budget frameworks and harmonising them with the rules of the new economic governance.The strengthening would be served by the enforcement of consistent accounting principles and the changeover to multiannual budget planning in the long term. This would guarantee that the budgets of Member States are aligned with the multiannual financial budget of the Union.

OBJECTIVES

One of the most important tasks of the Hungarian Presidency will be to continue the Council debate on the six legislative proposals submitted by the Commission and on the planned amendment to the Treaty, in order to strengthen the new economic governance, and to start up the European Semester in the first half of 2011.