The European Commission has adopted a legislative package containing the most comprehensive reinforcement of economic governance in the EU and the Euro area since the launch of the Economic and Monetary Union. These measure aim to enhance surveillance of fiscal policies as well as macroeconomic policies and structural reforms.

The proposals included in the legislative package on economic governance are the concrete translation of the recent Commission communications on economic governance dated 12 May and 30 June into legislative proposals. Following intense preparatory work and consultations with a broad range of stakeholders, including the Task Force on the Economic Governance chaired by President of the European Council Herman Van Rompuy, these policy proposals underline the Commission's strong will to process diligently with the necessary reforms.

These legislative reforms, which will be integrated by the recently agreed "European semester", should give the EU and the Euro area the necessary capacity and strength to conduct sound economic policies, thereby contributing to more sustainable growth and jobs, in line with the Europe 2020 strategy.

Legislative package on economic governance

The legislative package is made up of six pieces of legislation: four proposals deal with fiscal issues, including a wide-ranging reform of the Stability and Growth Pact (SGP), while two new regulations aims at detecting and addressing effectively emerging macroeconomic imbalances within the EU and the Euro area.

For Member States of the Euro area, changes will give teeth to enforcement mechanism and limit discretion in the application of sanctions. In other words, the SGP will become more "rules based" and sanctions will be the normal consequence to expect for countries in breach of their commitments.

• A Regulation amending the legislative underpinning of the preventive part of the Stability and Growth Pact (Regulation 1466/97): The preventive part of the SGP is meant to ensure that EU Member States follow prudent fiscal policies in good times to build up the necessary buffer for bad times.
• A Regulation amending the legislative underpinning of the corrective part of the Stability and Growth Pact (Regulation 1467/97): The corrective part of the SGP, is meant to avoid gross errors in budgetary policies. The regulation is amended so that debt developments are followed more closely and put on an equal footing with deficit developments as regards decisions linked to the excessive deficit procedure. Member States whose debt exceed 60% of GDP should take steps to reduce it at a satisfactory pace, defined as a reduction of 1/20th of the difference with the 60% threshold over the last three years.
• A Regulation on the effective enforcement of budgetary surveillance in the Euro area: Changes in both the preventive and corrective part of the SGP are backed up by a new set of gradual financial sanctions for Euro-area Member States. As to the preventive part, an interest-bearing deposit should be the consequence of significant deviations from prudent fiscal policy making. In the corrective part, a non-interest bearing deposit amounting to 0.2% of GDP would apply upon a decision to place a country in excessive deficit.
• A New Directive on requirements for the budgetary framework of the Member States: Since fiscal policy-making is decentralised, it is essential that the objectives of the SGP are reflected in the national budgetary frameworks, i.e. the set of elements that form the basis of national fiscal governance.
• A New Regulation on the prevention and correction of macroeconomic imbalances: The Excessive Imbalance Procedure (EIP) is a new element of the EU's economic surveillance framework. It comprises a regular assessment of the risks of imbalances based on a scoreboard composed of economic indicators. A Member State under EIP would have to present a corrective action plan that will be vetted by the Council.
• A Regulation on enforcement measures to correct excessive macroeconomic imbalances in the Euro area: Like in the fiscal field, if a Euro-area Member State repeatedly fails to act on Council EIP recommendations to address excessive imbalances, it will have to pay a yearly fine equal to 0.1% of its GDP.