The Council agreed within the Economic and Financial Affairs Council held on 15 March, a general approach on a package of measures aimed at strengthening economic governance in the euro area, as part of the EU's response to the challenges highlighted by recent turmoil on sovereign debt markets. The agreement will enable the presidency to start negotiations with the European Parliament, with the aim of reaching an overall agreement in June.

Recognising that existing EU instruments did not generate a satisfactory decline of public debt and catered insufficiently for macroeconomic imbalances, the proposals on economic governance agreed by the Council are aimed at enhancing budgetary discipline in the member states and broadening the surveillance of their economic policies. They translate the recommendations of a task force on economic governance, chaired by the President of the European Council, Herman Van Rompuy, which concluded that the EU's monetary union will not be able to function properly in the long term without increased economic coordination.

Four of the proposals of the legislative package on economic governance deal with reform of the EU's Stability and Growth Pact. They are aimed at enhancing the surveillance of fiscal policies, introducing provisions on national fiscal frameworks, and applying enforcement measures for non-compliant member states more consistently and at an earlier stage. The other two proposals target macroeconomic imbalances within the EU.

Tackling excessive debt and imbalances within the euro area

Regarding the reforms on the Stability and Growth Pact, the Council has agreed on corrective measures requiring  member states whose debt exceeds 60% of GDP to take steps to reduce their debt at a pre-defined pace, even if their deficit is below 3% of GDP. To strengthen the corrective arm of the Stability and Growth Pact, a new set of financial sanctions would be introduced for euro-area member states.

A non-interest-bearing deposit amounting to 0.2% of GDP may be imposed already when decision has been taken to subject a country to the excessive deficit procedure. If the Council's recommendation for correcting the deficit is not followed, a fine will be imposed. Further non-compliance would result in the sanction being stepped up, in line with the existing provisions in the Stability and Growth Pact.

On the surveillance side of the system, a new mechanism would be established for the prevention and correction of excessive macroeconomic imbalances, made up of two regulations which outline an "excessive imbalance procedure" and introduce the possibility of fines being imposed on member states found to be in an "excessive imbalance position" and repeatedly failing to comply with recommendations.

Fines collected in the context of both the excessive imbalance and excessive deficit procedures would be transferred to the crisis fund created for the euro area to provide financial assistance to member states in difficulty, which is the European Financial Stability Facility and the future European Stability Mechanism.

Package  of measures aimed at strengthening economic governance in the euro area

• Draft regulation amending regulation 1466/97 on the surveillance of member states budgetary and economic policies
• Draft regulation amending regulation 1467/97 on the EU's excessive deficit procedure
• Draft regulation on the enforcement of budgetary surveillance in the euro area
• Draft regulation on the prevention and correction of macroeconomic imbalances
• Draft regulation on enforcement measures to correct excessive macroeconomic imbalances in the euro area
• Draft directive on requirements for the member states' budgetary frameworks