Sixpack (EU law)

The EU economic governance Sixpack describes a set of European legislative measures to reform the Stability and Growth Pact and to introduce new macroeconomic surveillance. These measures were bundled into a "six pack" of regulations, that entered into force 13 December 2011, after one year of preceding negotiations between the Council of the European Union and European Parliament. They aim at strengthening the procedures to reduce public deficits and address macroeconomic imbalances.

Overview

All 27 EU member states are committed by the paragraphs in the EU Treaty, referred to as the Stability and Growth Pact (SGP), to implement a fiscal policy aiming for the country to stay within the limits on government deficit (3% of GDP) and debt (60% of GDP); and in case of having a debt level above 60% it should each year have a declining trend. Each year all EU member states are obliged to submit a SGP compliance report for the scrutiny and evaluation of the European Commission and the Council of Ministers, that will present the country's expected fiscal development for the current and subsequent three years. These reports are called "stability programmes" for eurozone Member States and "convergence programmes" for non-eurozone Member States, but despite having different titles they are identical in regards of the content. After the reform of the SGP in 2005, these programmes have also included the Medium-Term budgetary Objectives (MTO's), being individually calculated for each Member State as the medium-term sustainable average-limit for the country's structural deficit, and the Member State is also obliged to outline the measures it intends to implement to attain its MTO. If the EU Member State do not comply with both the deficit limit and the debt limit, a so-called "Excessive Deficit Procedure" (EDP) is initiated along with a deadline to comply, which basically includes and outlines an "adjustment path towards reaching the MTO".

Four of the six instruments in the Sixpack, are used to conduct a further reform of the "Stability and Growth Pact", focusing to improve the compliance part. The reform does not change any of the info provided in the paragraph above. But to enforce budgetary discipline in the Member States of the euro area, the sanctions now come into force earlier and more consistently than before. For example, when a country, against which an excessive deficit procedure was opened, fails to take necessary measures to eliminate its deficit, an interest-bearing deposit in the amount of 0.2% of GDP is due. With continued non-compliance the deposit is converted into a fine. In addition, automatic sanctions are triggered, based on a different voting mechanism in the Council of the European Union. At the same time the national accounts statistics and forecast practices of Member States are adjusted to comply with EU standards. If it is determined that a country has reported false data, an additional fine may be imposed.

The remaining two pieces of legislation in the Sixpack, relate to the Macroeconomic Imbalance Procedure, an early warning system for excessive macroeconomic imbalances and a correction mechanism.

Specific EU regulations and guidelines

Specifically, the EU sixpack relates to the following regulations and guidelines:

Fiscal policy

1. Regulation of the European Parliament and the Council amending Regulation (EC) No 1466/97 on the strengthening of budgetary surveillance and coordination of economic policies
2. Council Regulation amending Regulation (EC) No 1467/97 regarding speeding up and clarifying the implementation of the excessive deficit
3. Regulation of the European Parliament and Council Directive on the effective enforcement of budgetary surveillance in the euro area
4. Directive of the Council on the requirements for the fiscal framework of the Member States

Macroeconomic imbalances

5. Regulation of the European Parliament and of the Council on the prevention and correction of macroeconomic imbalances
6. Regulation of the European Parliament and of the Council on enforcement action to correct excessive macroeconomic imbalances in the euro area

Further proposals for the Eurozone

Development of the Eurozone fiscal union can be described as the next fourth stage of the EMU, proposed to be implemented for the Eurozone in a near future. The argument presented was, that Member States sharing the same currency will also need more integration of fiscal policy's (closer collaboration on fiscal matters) and a tighter budgetary surveillance, to prevent and combat occurrence of financial instability caused by macroeconomic imbalances inside the monetary union.

Two-pack

The first steppingstone for the work to develop a fiscal union started on 23 November 2011, where the European Commission proposed the two draft Regulations listed below (also known as the "Two-pack"), which introduced an additional coordination and surveillance of budgetary processes for all eurozone members. The additional regulations complements the SGP's requirement for surveillance, by enhancing the frequency for scrutiny of Member States' policymaking, but do not place additional requirements on the policy itself. The monitor frequency will depend on the economic health of the member state. All eurozone member states are obliged to respect "Regulation 1", while "Regulation 2" – demanding a further increased monitor frequency – only will be triggered if the state has an ongoing Excessive Deficit Procedure (EDP) or Excessive Imbalance Procedure (EIP):

1. Regulation: 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.
   If the eurozone member state is not involved in an Excessive Deficit Procedure (EDP) / Excessive Imbalance Procedure (EIP), the only extra monitor requirement (compared to the SGP) will be for the member state to submit its draft fiscal budget for the upcoming year to the European Commission: no later than 15 October; and it shall then await receiving the Commission's opinion before it is debated and voted for in the national parliament. The European Commission will not be granted any veto right over the national parliaments potential pass of a fiscal budget, but will have the role to issue warnings in advance to the national parliaments, if the proposed draft budget is found to compromise the debt and deficit rule outlined by the SGP / Fiscal Compact.
2. Regulation: 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.
   Eurozone member states with an ongoing EDP/EIP, or being involved in a financial assistance program from EFSF/ESM, will be required to further increase the level and frequency for submitted monitor/surveillance reports to the European Commission. This increased monitor frequency will mean, that the Commission will now be allowed to send warnings to the national parliaments of eurozone member states, about a likely missed compliance with programme targets and/or the fiscal adjustment path to comply with EDP deadlines, at such an early stage in the process, that the affected member state still have sufficient time to implement needed counter-measures to prevent the possible delay of the required compliance.

The two additional regulations for eurozone member states listed above, together form a stronger budgetary governance with a more tight system of monitoring and surveillance. According to article 136 in the Treaty on the Functioning of the European Union, the enactment and entry into force of the regulations will require the Council's adoption in agreement with the European Parliament, subject to a qualified majority of the 17 eurozone member states. At the ECOFIN council meeting on 4 December 2012, it was noted they expected to conclude an agreement with the European Parliament by the end of December 2012. A final agreement with the Parliament's Permanent Representatives Committee was reached on 20 February, and the parliament then adopted the two-pack on 12 March, with the first regulation passed by 526 voting for towards 86 against and 66 abstentions, and with the second regulation passed by 528 voting for towards 81 against and 71 abstentions. Currently the law package is being scrutinized by the lawyer-linguists for potential unintended flaws or mistakes, but when returned the Council expects to sign its final approval of the Two-Pack immediately at its next meeting. Finally it will then legally enter into force 20 day after publication in the Official Journal of the European Union, with all provisions applying from the moment of entry into force, except for the request to transpose Article 4 into the national legislation of the member state - which is given a 6 months deadline.

The provisions of the Two-Pack (as EU law), is to a large extend identical with the provisions of the intergovernmental European Fiscal Compact. Both of them include the requirement to transpose the fiscal rules into national legislation, and the two instruments are considered to be complementary. The legal structure is expected to be used for the first time, when the 2014 fiscal budget draft laws shall be submitted to the European Commission for prior review and comments by 15 October 2013.

If eurobonds will be introduced at a later point of time, it is clear that any move towards the joint issuance of debt is premised on strong budgetary governance and a watertight system of monitoring and surveillance. In that regard the two new regulations can be seen as a first necessary step. According to the Commission, the new two rules will however also need to get supplemented by a further set of rules, before being strict enough to pave the way for eurobonds.

Eurobonds

On 23 November 2011, the European Commission also presented a Green paper for the possible introduction of Eurobonds (referred to as "Stability Bonds"), that outlined different options and levels for common issuance and common guarantees. After having concluded a public consultation on the subject in January 2012, the Commission asked for the political opinion of the European Economic and Social Committee. This opinion was submitted to the Commission on 11 July 2012, with a recommendation for the Commission to continue the political work to develop a proposal. The committee revealed, that it favoured the option where eurobonds should carry full common payment guarantees (from all eurozone member states) but only substitute a part of the current national bonds (subject to a fiscal responsibility criteria still to be developed). It was fully agreed, that the impact of introducing eurobonds would be an effective tool to ensure low (and more equal) interest rates across all eurozone countries (with the degree of its effect being related to how big a share of national bonds would be substituted with eurobonds). The committee however also called for additional impact studies, to map if (or by how much) the 3 different levels for introduction of eurobonds, potentially also could introduce some negative consequences, in the form of an increased risk that each of the eurozone countries might exploit the gained "security delivered by common eurobonds", just to lower their exercised degree of "fiscal responsibility" at the national level.

Introduction of Eurobonds (Stability Bonds) is expected first to require a Treaty change and/or other political agreements first to be implemented. Despite of a relative long roadmap for a possible introduction of eurobonds, it is believed an agreement for this proposal could have an immediate impact on market expectations, resulting in the immediate decline of funding costs through lower government bond yields, for those Member States currently facing funding pressures.

The European Commission presented on 28 November 2012 a "Blueprint", on how it see the path on the short + medium + long term towards building a deep and genuine EMU. In this report, the introduction of eurobonds were descriped as the last final step on the path to create a genuine fiscal union, and something only to be introduced in the long term (beyond 5 years from 2012). The report suggested for the medium term (18 months to 5 years), that it was more appropriate as a first step, to introduce a common issuance by eurozone Member States of the so-called eurobills, which are defined as being short-term instruments to finance government debt with a maturity of up to one or two years. This first step would still require a treaty change along with an increased call for tighter fiscal policy integration, but would not require a full fiscal integration straight from the start, because of the fact that it only covered introduction of common short term debt – and thus the risk of excersiced "moral hazard" in the individual member states would be limited.

The "Blueprint" on the next steps towards a deeper Economic and Monetary Union, is to be considered as the first draft version of a joint report from the "Four presidents" (signed by President of the European Council, President of the European Commission, President of the European Central Bank and the President of the Eurogroup), that will be further discussed by the European Council on 13–14 December 2012.

Convergence and Competitiveness Instrument (CCI)

The European Commission also recently proposed the establishment of a Convergence and Competitiveness Instrument (CCI) within the EU budget. The proposal is to create a special EU budget account with earmarked money, for supporting the timely implementation of needed structural reforms (traditionally considered to be political unpopulair to implement), on the condition that "contractual arrangements" are concluded between Member States and the Commission. If the Member State implements the identified and needed structural reforms to ensure convergence/competitiveness, then the CCI budget will so to speak pay the Member State an economic reward of behaving in a sound and responsible way. The proposal is expected to be further debated, soon after the Council have concluded an agreement for the next 7-year EU budget (also referred to as the "Multi-annual Financial Framework 2014–2020").

An additional/related suggestion also currently being debated, is to create the CCI outside the EU budget and only let it apply for eurozone member states, with a budget instead to be covered by income from the collection of the Financial Transaction Tax (FTT). In October 2012, the FTT was formally agreed to be implemented and enter into force 1 January 2014 in 11 out of 17 eurozone member states. Currently no formal decision was however reached, if the collected income should be kept as direct national income, or perhaps instead be transferred to a supranational eurozone budget.

Bank Union

The proposal to create a Bank Union, cover both the creation of a Single Supervisory Mechanism (SSM), and after its adoption also a Single Resolution Mechanism (SRM) to deal with banks in difficulties. This new independent organisation, is supposed to be in charge of the restructuring and resolution of banks within the EU Member States participating in the Banking Union (meaning that it is not limited to the eurozone). The European Commission presented the proposal 12 September 2012, and at the EU summit in October it was agreed to formally request, that a final proposal for the SSM framework should be agreed between the Council and Parliament before the end of the year, with the aim for the SSM to be founded in 2013 and fully established to cover all banks starting from 1 January 2014.

On 29 November 2012, the Economic and Monetary affairs Committee of the European Parliament voted on the framework proposal, and gave its mandate to reach an agreement with the Council, meaning that the informal trilogue can now begin. The outstanding issues for the ECOFIN council to consider at their next meeting on 4 December 2012, is to decide on the role of the national supervisors, the governance of the ECB and the voting rights within EBA. At the council meeting there was not sufficient time to agree on any final decision, so the council will be called for a second metting within 8 days, with the aim to conclude the work ahead of the EU summit on 13–14 December. Any change of the EU legislation about EBA require (according to article 114 of the TFEU): A qualified majority at the Council in conjunction with the Parliament's approval. While any change of the EU legislation about ECB's function/role require (according to article 127(6) of the TFEU): Unanimity for adoption by the Council, after consulting the European Parliament and the ECB.

See also

• Enhanced co-operation
• European sovereign debt crisis
• European Fiscal Union
• Euro Plus Pact
• Macroeconomic Imbalance Procedure

External links

1. Press release on the Six-pack: EU Economic governance "Six-Pack" enters into force, Europa, 12 December 2011
2. Overview of all EU instruments for Economic governance: Economic governance in EU, European Commission, 26 October 2012