Explanatory Memorandum to COM(1996)496-2 - Speeding up and clarifying the implementation of the excessive deficit procedure

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dossier COM(1996)496-2 - Speeding up and clarifying the implementation of the excessive deficit procedure.
source COM(1996)496 EN
date 16-10-1996
Avis juridique important

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51996PC0496(02)

Proposal for a COUNCIL REGULATION (EC) on speeding up and clarifying the implementation of the excessive deficit procedure /* COM/96/0496 FINAL - CNS 96/0248 */

Official Journal C 368 , 06/12/1996 P. 0012


Contents

1.

Proposal for a Council Regulation (EC) on speeding up and clarifying the implementation of the excessive deficit procedure (96/C 368/07) COM(96) 496 final - 96/0248(CNS)


(Submitted by the Commission on 18 October 1996) THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular the second subparagraph of Article 104 (c) (14) thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Having regard to the opinion of the European Monetary Institute,

Whereas the maintenance of sound budgetary positions in the Member States creates the appropriate conditions for the sustained growth of output and employment; whereas budgetary discipline will be required in the third stage of economic and monetary union to ensure monetary stability;

Whereas national budgetary policies need to be set so as to create room for manoeuvre in adapting to exceptional and cyclical disturbances and so as to avoid excessive deficits; whereas there is a case for giving a rigorous interpretation to the concept of exception and temporary circumstances which could involve quantifying the concept of significantly negative real growth;

Whereas the Protocol No 5 on the excessive deficit procedure contains provisions relating to the implementation of the procedure foreseen in Article 104 (c); whereas further implementing provisions are necessary; whereas, according to the second subparagraph of Article 104 (c) (14), the Council shall adopt the appropriate provisions to that effect; whereas the provisions of this Regulation together with those of the Protocol constitute a new integrated set of rules;

Whereas, according to Article 109 (k) (3), Articles 104 (c) (9) and (11) only apply to those Member States having adopted a single currency;

Whereas there is a need to establish deadlines for the application of the excessive deficit procedure in order to ensure its expeditious and effective application; whereas there is a need to specify how the sanctions foreseen in Article 104 (c) of the Treaty could be imposed on Member States which persistently fail to correct an excessive deficit situation in order to ensure the effective application of the excessive deficit procedure;

Whereas the present regulation forms part of the stability pact for ensuring budgetary discipline in stage three of economic and monetary union (EMU); whereas the pact includes two main elements: (i) strengthening the surveillance and coordination of budgetary positions; and (ii) speeding up and clarifying the implementation of the excessive deficit procedure; whereas the first of these elements provides an early warning system in which divergences from Member States' medium-term budgetary paths are identified and recommendations made by the Council to take corrective action well before a deficit position seems excessive;

Whereas the rules for such a strengthening of the surveillance and coordination of budgetary positions have been laid down in Council Regulation [. . .];

Whereas the reinforced surveillance in the terms of Regulation [. . .] together with the Commission's monitoring of budgetary positions in accordance with paragraph 2 of Article 104 (c) provide a basis for a rapid implementation of the excessive deficit procedure;

Whereas, in the light of the above, an overall maximum period of 10 months from the reporting date or any other activation of the procedure until, if necessary, the imposition of sanctions seems both feasible and appropriate in order to exert pressure on the Member State to implement corrective measures; in the event of a procedure starting in March this could lead to sanctions being imposed within the calendar year in which the procedure has been started;

Whereas the issuing of a Council recommendation or the later steps of the excessive deficit procedure will come as no surprise to a government, which will effectively have had a much longer period in which to prepare corrective measures. Whereas the seriousness of moving into excessive deficit in stage three should call for urgent action from all those involved;

Whereas when acting with a view to correct the excessive deficit the government of the Member State concerned will, if required by national law, take measures associating the national parliament; whereas the national decision-making process in accordance with Article 3 of the Protocol No 5, should not, as such, hinder the expeditious implementation of the excessive deficit procedure;

Whereas it is considered that, in order to ensure that the excessive deficit procedure has a sufficient deterrent effect, a non-interest-bearing deposit of appropriate size should be required from the Member State concerned when the Council decides to impose a sanction;

Whereas the definition of sanctions on a prescribed scale removes uncertainties and would thus allow those involved in the procedure to have full information about it; whereas it is appropriate to relate the amount of the deposit to the GDP of the Member State concerned; whereas it is appropriate that the deposit should consist of a fixed component due in all cases when pecuniary sanctions are imposed and a variable component proportional to the excess of the deficit over the 3 % of GDP reference value; whereas it is also appropriate to fix a maximum amount, as a percentage of GDP, to the sanctions for the latter not to have counterproductive effects;

Whereas in the event that the constitution of a non-interest-bearing deposit does not induce the Member State concerned to correct its excessive deficit then it is appropriate to intensify the sanctions; whereas it is therefore appropriate to transform the deposit into a fine in such an event and require the Member State concerned to constitute a new non-interest-bearing deposit;

Whereas action by the Member State concerned with a view to correcting its excessive deficit is the first step towards abrogation of sanctions; whereas significant progress in correcting the excessive deficit should allow for some lifting of sanctions in accordance with Article 104 (c) (12); whereas the abrogation of all outstanding sanctions should only occur once the excessive deficit has been corrected;

Whereas Council Regulation (EC) No 3605/93 of 22 November 1993 on the application of the protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community (1) sets detailed rules for the reporting of budgetary data by the Member States,

Whereas, according to Article 109 (f) (8), where the Treaty provides for a consultative role for the European Central Bank (ECB), references to the ECB shall be read as referring to the European Monetary Institute before the establishment of the ECB,

HAS ADOPTED THIS REGULATION:


2.

SECTION 1 Speeding up the excessive deficit procedure



Article 1

1. The Council shall decide on the existence of an excessive deficit in accordance with Article 104 (c) (6), within three months of the reporting dates established in Articles 4 (2) and 4 (3) of Regulation (EC) No 3605/93. Where it decides on the existence of an excessive deficit in accordance with Article 104 (c) (6) the Council shall issue recommendations to the Member State concerned in accordance with Article 104 (c) (7) at the same time.

2. The excess of a government deficit over the reference value shall be considered exceptional and temporary, in accordance with the second indent of Article 104 (c) (2a), when resulting from an unusual event outside the control of the relevant Member State and which has a major impact on the financial position of the general government, or when resulting from a severe economic downturn, in particular in the case of significantly negative annual real growth. In addition, if the unusual event or the severe economic downturn has come to an end or if it is forecast that it will come to an end in the calendar year following the year in which the deficit exceeds the reference value, budgetary forecasts provided by the Commission must indicate that the deficit would fall below the reference value in this same following year.


3.

Article 2


1. Any Council decision to make its recommendations public having established that no effective action has been taken in accordance with Article 104 (c) (8) shall be taken within four months of the decision on the existence of an excessive deficit taken in accordance with Article 104 (c) (6) and the issuing of recommendations in accordance with Article 104 (c) (7).

2. The Council, when considering whether effective action has been taken in response to its recommendations issued in accordance with Article 104 (c) (7), may base its decision on official public decisions by the Government of the Member State concerned. If these official public decisions are not, if necessary, enacted by national legislatures within a time limit to be defined by the Council in its recommendations issued in accordance with Article 104 (c) (7), or if the decisions are modified substantially during the adoption process, then the Council shall reconsider whether effective action has been taken.


4.

Article 3


Any Council decision to give notice to the Member State to take measures for the deficit reduction in accordance with Article 104 (c) (9) shall be taken within one month of the Council decision that no effective action has been taken in accordance with Article 104 (c) (8).


5.

Article 4


Where the conditions to apply Article 104 (c) (11) are met, the Council will, as a rule, decide to impose sanctions in accordance with Article 104 (c) (11). Any such decision shall be taken no later than two months after the Council decision to give notice to the Member State to take measures in accordance with Article 104 (c) (9).


6.

Article 5


The total time between the reporting dates referred to in Article 1 of this Regulation and a Council decision on the imposition of sanctions referred to in Article 4 of this Regulation shall not exceed 10 months.


7.

Article 6


Any Council decision to intensify sanctions (other than the imposition of fines dealt with in Article 9 of this Regulation) in accordance with Article 104 (c) (11), or to abrogate some or all of its decisions in accordance with Article 104 (c) (12), shall be taken no later than two months after the reporting dates pursuant to Regulation (EC) No 3605/93.


8.

SECTION 2 Sanctions



Article 7

Whenever the Council decides to apply sanctions to a Member State in accordance with Article 104 (c) (11), a non-interest-bearing deposit would, as a rule, be required. The Council may decide to supplement this deposit by the measures foreseen in the first and second indents of Article 104 (c) (11).


9.

Article 8


When the excessive deficit results from non-compliance with the criterion relating to the government deficit ratio in Article 104 (c) (2a), the amount of the deposit shall comprise of a fixed component equal to 0,2 % of GDP, and a variable component equal to one tenth of the difference between the deficit as a percentage of GDP of the year in which such deficit was deemed excessive and the reference value. An upper limit of 0,5 % of GDP is set for the annual amount of deposits.

When the excessive deficit results only from non-compliance with the criterion relating to the government debt ratio in Article 104 (c) (2b), the amount of the deposit shall comprise of a fixed component equal to 0,2 % of GDP.


10.

Article 9


The initial deposit will, as a rule, be converted into a fine if within the two subsequent years the excessive deficit has, in the view of the Council, not been corrected. The Council may decide to supplement this fine by the measures foreseen in the first and second indents of Article 104 (c) (11) if the latter had not been applied at the moment of imposing sanctions. At the same time the Member State should be required to make a new non-interest-bearing deposit calculated according to the rule set out in Article 8 of this Regulation.


11.

Article 10


In accordance with Article 104 (c) (12), the Council may decide to abrogate some or all the sanctions defined in the first and second indents of Article 104 (c) (11) to the extent that the Member State is making significant though not yet sufficient progress in correcting the excessive deficit.


12.

Article 11


In accordance with Article 104 (c) (12), the Council shall abrogate all outstanding sanctions if the decision on the existence of an excessive deficit is abrogated. Fines imposed in accordance with Article 9 of this Regulation will not be returned to the Member State concerned.


13.

Article 12


Deposits as specified in Article 8 of this Regulation shall be lodged with the Commission. Interest on the deposits, and fines specified in Article 9 of this Regulation constitute resources of the general budget of the European Communities.


14.

Article 13


This Regulation shall enter into force on 1 January 1999.


This Regulation shall be binding in its entirety and directly applicable in all Member States.

OJ No L 332, 31. 12. 1993, p. 7.