The draft reforms are the result of the large rise in government debt and deficit levels caused in most countries by the global financial crisis and world recession of 2008 and 2009. This led to bailouts for many financial institutions, as well as two nations – Greece and Ireland – which had sovereign debt crises in 2010.
The EU’s Stability and Growth Pact stipulates that countries should have government debt to gross domestic product ratios of less than 60 per cent and budget deficits at 3 per cent or less. Currently, all EU countries except Luxembourg are in breach of the SGP and subject to an Excessive Deficit Procedure which lays down time limits to reduce debt and deficit levels.
The Commission and the right-wing groups in Parliament have proposed that, in future, countries which fall into the EDP should automatically pay a fine of 0.2 per cent, which they would get back if they took “effective measures” to reduce their debt levels by 5 per cent per year and reduce deficit levels. If they did not, they would face a further non-retrievable fine of between 0.1 and 0.5 per cent of GDP. In the reports on the sanctions, there are no mentions of job creation and low unemployment as a route to growth.
The Socialist group and its allies argue that such stringent measures would enshrine the principle that governments in financial difficulties would have to make harsh austerity programmes and that the fines would be pro-cyclical, making it even harder for countries to return to growth and making a prolonged recession more likely.
Although there is cross-group support for long-term deficit and debt reduction, the Socialists have stressed that sanctions should be much lower, proportionate and only applied in cases where governments had clearly made no attempt to deliver economic growth.
The Parliament reports respond to proposals made by the Commission in October 2010 and are expected to be subject to several thousand amendments.
Other notable proposals by Parliament include a demand for a European monetary fund to replace the temporary mechanism used to bail out Greece and Ireland and an agreement between the Parliament and the Council of Ministers for issues such as labour markets and unemployment levels to be considered in any measures.
