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Document 52012DC0342
COMMUNICATION FROM THE COMMISSION Common principles on national fiscal correction mechanisms
COMMUNICATION FROM THE COMMISSION Common principles on national fiscal correction mechanisms
COMMUNICATION FROM THE COMMISSION Common principles on national fiscal correction mechanisms
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COMMUNICATION FROM THE COMMISSION Common principles on national fiscal correction mechanisms /* COM/2012/0342 final */
COMMUNICATION
FROM THE COMMISSION Common
principles on national fiscal correction mechanisms Background The Treaty on the
functioning of the European Union requires that Member States regard their
economic policies as a matter of common concern and that their budgetary
policies are guided by the need for sound public finances. The global economic and
financial crises have exposed weaknesses in economic and budgetary governance
in the Economic and Monetary Union. Already, a new reform package – the so-called
Six-Pack – has been adopted and entered into force last December. As the
difficult times continue, the extent and potential consequences of the
spillovers between euro area Member States' economic and budgetary situations
is now clearly evident. Based on this rationale,
the Commission proposed on 23 November 2011 two further pieces of legislation
aimed at strengthening the surveillance mechanisms in the euro area, in
addition to a Green Paper on euro Stability Bonds. This so-called
"Two-Pack" comprises two proposals:
Regulation of the European Parliament and
the Council on common provisions for monitoring and assessing draft
budgetary plans and ensuring the correction of excessive deficit of the
Member States in the euro area.
Regulation of the European Parliament and
the Council on the strengthening of economic and budgetary surveillance of
Member States experiencing or threatened with serious difficulties with
respect to their financial stability in the euro area.
In addition, building on
these elements and in view of safeguarding the stability of the euro area as a
whole, the Treaty on Stability, Coordination and Governance in the Economic and
Monetary Union (TSCG), which was signed on 2 March 2012 by twenty-five Member
States, includes a fiscal compact (Title III). The aim is to enshrine these
commitments into EU law within five years of its entry into force. As part of the fiscal
compact, the Contracting Parties shall introduce in their national law rules on
a correction mechanism to be triggered automatically in the event of
significant observed deviations from the medium-term objective or the
adjustment path towards it (article 3, paragraphs 1(e) and 2). Moreover, according to
the TSCG (article 3.2), the correction mechanisms shall be put in place "on
the basis of common principles to be proposed by the European Commission,
concerning in particular the nature, the size, and the time-frame of the
corrective action to be undertaken also in the case of exceptional
circumstances, and the role and independence of the institutions responsible at
national level for monitoring the observance of the rules". As part of the
implementation of the TSCG, this Communication is adopted in view of the
general interest of the Union and to contribute to the proper functioning of
economic and monetary union This Communication puts
forward common principles underlying the national correction mechanisms. The
seven principles are to be found in the Annex. They cover the key issues to be
addressed when designing the correction mechanisms, including their legal
status, the consistency with the EU framework, the activation of the
mechanisms, the nature of the correction in terms of size and timeline, its
operational instruments, the working of possible escape clauses, and the role
and independence of monitoring institutions. .Article 3 of the
TSCG also invites the Commission to propose a time-frame for rapid convergence
of the Contracting Parties towards their medium-term objectives (MTO), taking
into consideration country-specific sustainability risks. This timeframe will
be presented by the Commission later this year. The consolidation plans
presented by Member States in their latest update of the Stability or
Convergence Programme would provide a natural starting point to define the pace
of convergence towards MTOs. These consolidation plans would need to be
reassessed against the provisions of the Stability and Growth Pact, including
the adequacy of MTOs, and the principles of the exit strategy in the light of
the macroeconomic outlook, notably differentiation according to fiscal
vulnerability. 1. Legal
status of the rules on the correction mechanisms and relation to the EU
framework According to the TSCG
the rules on the correction mechanisms shall take effect in national law
"through provisions of binding force and permanent character, preferably
constitutional, or otherwise guaranteed to be fully respected and adhered to
throughout the national budgetary processes". Thus the legal status of the
correction mechanisms should be such that their provisions cannot be simply
altered by the ordinary budgetary law. At the same time, as is also made clear
in the TSCG and duplicated in principle (1), the correction mechanisms
"shall fully respect the prerogatives of national Parliaments". These
characteristics aim at ensuring that the fiscal rules effectively inform
national budgetary policies, while acknowledging the fundamental parliamentary
rights. Principle (2)
asserts the necessary consistency with the EU budgetary rules of the national
correction mechanisms. The requirements of the fiscal compact are part of a
broader move, already initiated with the recent reform of the Stability and
Growth Pact (the "Six-Pack"), increasing the national ownership of
the Union surveillance framework. Accordingly the TSCG itself refers to already
existing notions of budgetary surveillance, including "the medium-term
objective" and "adjustment path towards it", the
"significant deviation", and the "exceptional circumstances".
Principle (2) specifies that EU concepts and rules shall be relied on
closely in devising the national mechanisms, although some degree of
flexibility may be allowed as regards the precise national methodologies to
account for country-specific features. 2. The
substance of correction mechanisms: activation, nature of the correction,
operational instruments, escape clauses As established by
principle (3), the activation of the correction mechanisms should
occur in well-defined circumstances characterising a significant deviation from
the MTO, or the adjustment path towards it. This entails the existence of
provisions determining beforehand the criteria for assessing the occurrence of
a significant deviation. Principle (3) also acknowledges that subject to
these conditions, a variety of mechanisms and criteria can be used by
Contracting Parties. In particular, trigger points may rely on either EU-level
criteria, country-specific criteria, or both. EU-level decisions establishing
the occurrence of a significant deviation would be a natural trigger for
corrections mechanisms. At the same time, country-specific criteria, to the
extent that they embody the concept of a significant deviation, may act as
relevant triggers with the possible additional benefit of occurring earlier in
time. The nature of the
correction in terms of size and timeframe is the object of
principle (4). The proposed principle provides concrete operational
guidance while avoiding an overly rigid approach. Accordingly
principle (4) comprises five sub-principles: - First, it
is asked that pre-determined rules frame the size and timeline of the
correction, thereby limiting, though not entirely ruling out, the scope for
discretion in devising the response to a significant budgetary deviation. - Second,
larger deviations should lead to larger corrections, in line with a
common-sense norm of proportionality. - Third,
the reference point for determining the correction would be adherence with the
MTO and the adjustment path towards it, thereby echoing the spirit of the fiscal
compact, which at its core is about respecting the MTO and the adjustment path
towards it. Specifically, when on its adjustment path, a Member State that deviates would thus generally be expected to keep unchanged the timeline for
returning to the MTO. When initially at the MTO and deviating therefrom, a
Member State would be expected to restore the MTO as fast as reasonable, which
generally would mean either the year immediately following the occurrence of
the deviation or the subsequent year. Acting as a reference scenario does not
however entirely precludes room for flexibility depending on the precise
circumstances. - Fourth,
the correction mechanisms should be instrumental in providing critical elements
of stability in the budgetary framework, so as to prevent the
"moving-target syndrome" typically associated in response to
budgetary slippages. To that aim the correction mechanisms should ensure
adherence to key fiscal targets as set before the occurrence of the significant
deviation. - Fifth, at
the onset of the correction a corrective plan would need to be adopted and
would be binding on the subsequent budgets covering the period of the
correction, thereby strengthening the credibility of the mechanisms. The operational
working of the correction mechanisms is also an important aspect of the
design of correction mechanisms. Principle (5) acknowledges the key role
that rules over public expenditure and discretionary revenue measures can play
in this respect, bearing in mind that these aggregates are a more immediate
reflection of the discretionary decisions of fiscal authorities than eventual
fiscal outcomes or cyclically-adjusted balances. Another crucial element for
Member States to consider in designing their systems pertains to the
coordination across some or all of the sub-levels of general governments in
response to a significant budgetary deviation, thereby strengthening the
credibility of their mechanisms. These coordination mechanisms would not
necessarily entail a predetermined distribution of the correction between the
central government and the subnational elements. But there must be strong
safeguards that the achievement of the general government budgetary targets,
for which the central government is responsible vis-à-vis the EU level, is not
put at risk by the behaviour of sub-sectors. The notion that
budgetary rules should be able to react to particularly adverse circumstances
has long been acknowledged in the EU surveillance framework and is also
recognised by the TSCG. Principle (6) requests that possible escape
clauses rely closely on EU agreed notions, so as to promote consistency and
prevent overly permissive definitions of exceptional circumstances. It is also
demanded that the possible suspension of the correction mechanism offered by an
escape clause be granted over a defined horizon, and that a minimum pace of
adjustment follows the exit from the escape clause, in line with both the
requirement of the Stability and Growth Pact as a minimum. Again, a corrective
plan that would be binding on future budgets would be expected at the exit of
the escape clause. 3. Role and
independence of monitoring institutions While the responsibility
for ensuring compliance with the correction mechanisms primarily lies with
fiscal authorities, national monitoring institutions would be a key
ingredient in fostering credibility and transparency, as acknowledged in the
last of the proposed principles (principle (7)). These bodies would be
expected to evaluate the working of the correction mechanisms in conformity
with national rules at the various stages of activation and implementation of
the correction, including also the possible recourse to escape clauses. A "comply or
explain" principle – whereby the advice of these monitoring institutions
would either be followed, or the concerned Member States would explain why it
departs from it – would ensure that the assessments are not just ignored,
without infringing on the policymaking responsibilities of fiscal authorities. The independence of
functional autonomy of these bodies is a fundamental feature enabling them to
play effectively their role in the national fiscal policy landscape.
Principle (7) tables several provisions to that effect. First, to ensure
ownership, the design of the monitoring institutions should be consistent with
the already existing institutional setting and the country-specific
administrative structure. Second, several criteria are put forward to guarantee
a high degree of functional autonomy. Legal provisions should ground the statutory
regime, mandate and accountability of these bodies. Strong safeguards should
also be put in place regarding appointments and the adequacy of resources and
access to information in relation to the mandate. These conditions are
necessary to allow the monitoring institutions to effectively work and act as
guardians of the transparency and credibility of the mechanisms. Particular
emphasis should be placed on allowing unhindered communication with the public.
ANNEX Common
principles for national fiscal correction mechanisms (1) [Legal status] The
correction mechanism shall be enshrined in national law through provisions of
binding force and permanent character, preferably constitutional, or otherwise
guaranteed to be fully respected and adhered to throughout the national
budgetary processes. The mechanism shall fully respect the prerogatives of
national Parliaments. (2) [Consistency with EU
framework] National correction mechanisms shall rely closely on the concepts
and rules of the European fiscal framework. This applies in particular to the
notion of a 'significant deviation' and the definition of possible escape
clauses. The correction, in terms of size and timeline, shall be made
consistent with possible recommendations addressed to the concerned Member State under the Stability and Growth Pact. (3) [Activation] The
activation of the correction mechanism shall occur in well-defined
circumstances characterising a significant deviation from the medium-term
objective (MTO) or the adjustment path towards it. The activation triggers may
comprise EU-driven or country-specific criteria, to the extent that they meet
the above condition. Subject to the same condition, both ex ante mechanisms
that set budgetary objectives preventing the materialisation of deviations and
ex post mechanisms that trigger corrections in reaction to prior deviations,
may fulfil the requirements. (4) [Nature of the
correction] The size and timeline of the correction shall be framed by
pre-determined rules. Larger deviations from the medium-term objective or the
adjustment path towards it shall lead to larger corrections. Restoring the
structural balance at or above the MTO within the planned deadline, and
maintaining it there afterwards, shall provide the reference point for the correction
mechanism. The correction mechanism shall ensure adherence to critical fiscal
targets as set before the occurrence of the significant deviation, thereby
preventing any lasting departure from overall fiscal objectives as planned before
the occurrence of the significant deviation. At the onset of the correction
Member States shall adopt a corrective plan that shall be binding over the
budgets covered by the correction period. (5) [Operational
instruments] The correction mechanism may give a prominent operational role to
rules on public expenditure and discretionary tax measures, including in
activating the mechanism and implementing the correction, to the extent that
these rules are consistent with attainment of the MTO and the adjustment path
towards it. The design of the correction mechanism shall consider provisions as
regards, in the event of activation, the coordination of fiscal adjustments
across some or all sub-sectors of general government. (6) [Escape clauses] The
definition of possible escape clauses shall adhere to the notion of
'exceptional circumstances' as agreed in the Stability and Growth Pact. This
would include an unusual event outside the control of the concerned Member State with a major impact on the financial position of the general government, or
periods of severe economic downturn as defined in the Stability and Growth
Pact, including at the level of the euro area. The suspension of the correction
mechanism in the event of an escape clause shall be on a temporary basis. The correction
mechanism shall foresee a minimum pace of structural adjustment once out of the
escape clause, with the requirement from the Stability and Growth Pact a lower
limit. When exiting the escape clause, Member States shall adopt a corrective
plan that shall be binding over the budgets covered by the correction period. (7) [Role and
independence of monitoring institutions] Independent bodies or bodies with
functional autonomy acting as monitoring institutions shall support the
credibility and transparency of the correction mechanism. These institutions
would provide public assessments over: the occurrence of circumstances
warranting the activation of the correction mechanism; of whether the
correction is proceeding in accordance with national rules and plans; and over
the occurrence of circumstances for triggering, extending and exiting escape
clauses. The concerned Member State shall be obliged to comply with, or
alternatively explain publicly why they are not following the assessments of
these bodies. The design of the above bodies shall take into account the
already existing institutional setting and the country-specific administrative
structure. National legal provisions ensuring a high degree of functional
autonomy shall underpin the above bodies, including: i) a statutory regime
grounded in law; ii) freedom from interference, whereby the above bodies shall
not take instructions, and shall be in a capacity to communicate publicly in a
timely manner; iii) nomination procedures based on experience and competence;
iv) adequacy of resources and appropriate access to information to carry out
the given mandate.