Package of six legislative proposals: Parliament also feels its responsibility

Other elements of the EU’s comprehensive response to the crisis seem to attract more attention, although many believe that the package of six legislative proposals is of revolutionary importance. Do you agree with this view?

I believe that the historical significance of this agreement is that it really creates the second, economic pillar for the Economic and Monetary Union (EMU). Economists have long claimed that the lack of this pillar, is the weak point of the European economy, and therefore effecting the euro. At the same time, the proposals of the legislative package obviously restrict the autonomy of national economic policies, and as long as the issue was not imminent, national economic policy was reluctant to heed any disciplinary forces or restrictions. The Greek debt crisis opened politicians’ eyes to the need for a significant advancement in this field. It was then that the European Council decided to set up the high-level task force, where financial ministers have been debating these topics for almost half a year. What the Hungarian Presidency has been doing over the last three months is putting this political agreement into legislative proposals.

What exactly do these six closely interconnected legislative proposals contain, what does the reform of economic governance mean?

Primarily, the strengthening of the budgetary discipline. The provisions of the Stability and Growth Pact, will become more stringent. There will be more focus on prevention, intervention or even sanctions will be applied if the deficit of a Member State is below 3 percent; but it is already visible that an adverse process is unfolding. In addition to the deficit, the accomplishment of the public debt target will also be in focus, since the Treaty itself contains a public debt criterion of 60 percent, but in reality, rules have not enforced its attainment. The Council’s discretionary powers will also be reduced, and there will be more automated processes, especially concerning decision on sanctions. All of this will be supplemented by a draft directive, which is meant to incorporate the best European practices of fiscal rules in the legislations of Member States. A new concept, the macro-economic imbalance, will also be introduced. In the eurozone, significant current account surpluses and deficits, have been registered over the recent years, in certain countries very strong credit booms and real property market bubbles have developed, which substantially increased the costs of economic recession; making recovery much more difficult. Macro-economic imbalances, will be monitored, and if necessary, penalised.

Even one or two weeks before the meeting of the Economic and Financial Affairs Council (ECOFIN), on 15 March there had been quite a few unresolved issues about the package of draft legislations. How could you finally find compromises acceptable for every Member State?

These efforts were constantly receiving high-level political support. This matter was on the agenda of the Council’s meetings in October and November, and was discussed at the euro summit in March. It provided powerful political support for the agreement. Our task was to discuss the technical parts, and to find solutions that are acceptable for everyone. We have received strong political support, which was also reflected by the fundamentally constructive approaches of Member States. Without this, it would have been very difficult.

The story is not yet over, four legislations out of the six must be accepted in the framework of regular legislative procedure together with the European Parliament; and the other two, will require consultations. Viktor Orbán has recently met with the Parliament’s rapporteurs in order to make the necessary political preparations for the formal negotiating procedure, scheduled for the end of April. At the same time, it sounds quite frightening that EP representatives submitted about two thousand proposed modifications for the package of six legislative proposals. How do you evaluate the chances of these negotiations?

The upcoming second stage of the legislative procedure could be more difficult than the previous one. On the one hand, owing to the many different ideas, on certain issues, we started approximating views from quite a great distance. On the other hand, the EP is in delay compared to the Council. On 15 March, we received a full mandate from 27 Member States to start official negotiations with the Parliament and the Commission, while the EP’s rapporteur will probably receive this authorisation only around 20 April, from the economic and monetary committee of EP.

Nevertheless, informal consultations are already in progress. This is not yet an official dialogue, but we hope it could help to create awareness and understanding of the position of the Council.

Based on the unofficial consultations so far, could you identify those marked clashing points that will be in the focus of negotiations with the Parliament?

Some of the differences are natural and it relates to the EP’s ambition to receive roles that are more significant during certain processes. Let me give you an example. 8-10 indicators of a so-called scoreboard can predict whether excessive macro-economic imbalances are likely to occur in a given country. According to the legislative proposal, adopted in the Council, the Parliament will not have any influence on the development of the scoreboard. However, it is already clear, that the EP wants to have at least a consultative role in this.

There is another problematic area as well. The Commission came up with its original legislative proposals at the end of September last year, before the final version of the task force’s report. However, this latter differs from the original ideas of the Commission on some points. From the very beginning, the Parliament considered it an issue, as it was completely left out from the political discourse, taking place in the framework of the task force; we can expect that in issues, where the Commission and the task force have a different proposal, the position of the Parliament will be closer to the Commission’s original proposal.

It also causes problems that some proposals are in favour of connecting the six legislative proposals of the package with other important, but irrelevant issues. It is our intention to detach these from this consultation, so they will not affect the package.

If we could not keep to the schedule and achieve an agreement with the Parliament in June, it would convey a quite unpleasant message, since the rest of the elements of the comprehensive anti-crisis measures seem to be on track, and the package of six draft legislations is the only one that still remains open.

I am convinced that everyone is aware of this, including the Parliament. They are aware of their responsibility. This could contribute to creating an opportunity for compromises.

Another aspect of crisis prevention is the re-thinking of the regulation of financial services, since the troubles started in the financial sector. In this field, the Hungarian Presidency is required to bring an unprecedented number of files, almost twenty. What are the key matters for the Presidency, and what progress has been made concerning them? There is for instance the legislative proposal on the prohibition of naked short selling, about which Member States could not reach an agreement on the last ECOFIN meeting.

In fact, the Presidency gave up its intention for developing a preliminary position in the March meeting of the Council, the debate was only about the general direction of the proposal. This is a very complex statute aimed to restrict the short selling of shares, government securities, and so-called credit default swap (CDS) derivatives.

Member States have agreed on most of the proposed regulations. Actually, only two open issues have remained now. One is that whether naked short selling of government securities should be permanently prohibited, and if so, in what scope, and what should be the exact powers and functions of the European Securities and Markets Authority (ESMA), beyond the national supervisory authorities. We trust that in the May meeting of ECOFIN, we will manage to reach a consensus, a preliminary agreement on these two issues as well.

The Council section of the alignment is also in an advanced stage, it might be ready for closing in May. We can accept a general approach on the legislative proposal, concerning financial derivatives. The most important novelty of the proposal is that in most derivative transactions, it would be mandatory to involve a central contracting party, which would minimise partner risk, i.e. the possibility of a party suffering losses because its partner in the transaction, is not able to deliver.

Of the many issues, I would like to highlight the Omnibus II directive, which will incorporate the sectoral statutes of the already existing European supervisory authorities, i.e. it will complete legislative conditions that are necessary for the operation of the new micro-supervisory structure. The Commission’s proposal came out relatively late, only at the beginning of January, but we are working hard, and we are close to an agreement in the Council. We hope that we can close negotiations with the EP regarding all three legislative proposals, before the end of the Hungarian Presidency’s term.