New package on economic governance: a risk for the European social model? European Stagiaires' Journal (EN)

New package on economic governance: a risk for the European social model? European Stagiaires' Journal (EN)

New package on economic governance: a risk for the European social model? European Stagiaires’ Journal (EN)

Following the financial and economic crisis, broad consensus emerged on the need for reform and better governance of the global economy. Tightening financial supervision in the private sector and tackling dangerous imbalances in EU economies (growth of debt and deficits) seemed to be a priority for all. In April 2011, the Economic and Monetary Affairs Committee of the European Parliament adopted six new legislative proposals on economic governance, also known as the 'six-pack'.

On Thursday 23rd June, the European Parliament adopted its position on this economic governance package during a plenary session. This text will now serve as the backbone of the talks between MEPs and Member States which will continue until a final agreement can be reached. With this vote the views of the Parliament and the 27 Member States on economic governance are becoming closer but some obstacles remain, especially when it comes to sanctions on countries which don't comply with the rules.

Parts of the package, particularly the proposals dealing with strengthening the Stability and Growth Pact (SGP), went through with slim margins (see results of the votes below), with the S&D, Greens/EFA and GUE/NGL groups voting against specific parts of the proposals. On 21st June (two days before the vote), we met Philippe Lamberts, a Green MEP and member of the ECON Committee, to ask him what he thinks about the package.

Could you explain what exactly this package on economic governance is?

This package is the European response to the Euro crisis. The package is divided into six legislatives proposals (hence the 'six-pack'): three of them concern the Stability and Growth Pact, two of them focus on macroeconomic surveillance and the last one proposes new standards for national budgetary frameworks.

We are now in the final phase of the negotiations between the two legislative powers - the Parliament and the Council - under the mediation of the Commission. The objective is to reach an agreement before the end of June or, at the latest, for the European Parliament session of July.

The Greens have a nuanced attitude towards the package: we are not going to say no to all the proposals but we are not going to say yes to everything either.

Are you in favour of the three proposals regarding the Stability and Growth pact?

- Prudent fiscal policy and economic policy co-ordination
- Speeding up and clarifying the implementation of the excessive deficit procedure
- Sanctions related to breaches of the Stability and Growth Pact's rules

With the Euro crisis, it was clear that the Stability and Growth Pact didn't work - Member States were not sanctioned when disrespecting the rules. The pact needs to be strengthened but we believe that there are two unacceptable imbalances in the proposal.

Firstly we believe that, when controlling public deficits, we have to consider both spending and income. The proposal only focuses on cutting public spending - austerity is the only measure considered useful in fighting the crisis. Improvements have to be made in that area, no doubt, but a decrease in public spending will particularly impact the most vulnerable people, which is unfair.

Secondly, strong discipline on budgetary balance is important but this has to be nuanced. Public debts have increased because of the financial crisis. Governments needed money to help finance the private sector and banks, which created a deficit, but not because of a standard public policy. It is too easy to ask for public money and at the same time to ask to limit public deficit. Another important nuance is that the proposition stresses the importance of hard budgetary discipline but is soft on the rest. The objectives of the EU 2020 strategy for example are not binding. We believe that discipline on the budget should be tough, but so should discipline on poverty reduction, employment, education, research and development, climate change… The two should be given the same importance. But this was not accepted by the Council nor by the European Parliament.

Finally, I would like to point out the lack of discussion on fiscal integration between Member States, taxation of financial transactions, the fight against fraud, green tax system…

What about the propositions on macroeconomic surveillance, economic governance and budgetary frameworks?
- Preventing and correcting macroeconomic imbalances
- Sanctions related to macroeconomic imbalances
- Standards for national budgetary frameworks

There we can see a real improvement. It is important to monitor public deficit but also other macroeconomic variables like the private sector's debt, speculative bubbles, income inequalities… The compromise we reached seems acceptable.

What do you think of the sanctions related to macroeconomic imbalances? The Commission recently made some economic recommendations to Belgium and this created a heated debate…

There is no problem with the Commission making recommendations for a balanced budget. The problem is that the Commission also tells Member States how to do it. Whether a country chooses to decrease public spending or increase other income in order to achieve a balanced budget is not the Commission's business. It is exactly the same with labour productivity. To remain competitive, a country can choose to reduce labour costs or to increase the added value created by the workers - we can look at both the numerator and the denominator. The problem is that the European Commission is a politically-oriented body and is not accountable to the Parliament.

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