Proposal for a Council Regulation (EC) on the strengthening of the surveillance and coordination of budgetary positions (96/C 368/06) COM(96) 496 final - 96/0247(SYN)

(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 Article 103 (5) thereof,

Having regard to the proposal from the Commission,

In cooperation with the European Parliament,

(1) 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;

(2) 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;

(3) Whereas in the context of the single currency the closer coordination of budgetary and other economic policies assumes more importance;

(4) Whereas the reference value for the government deficit of 3 % of GDP specified in Article 1 of Protocol No 5 on the excessive deficit procedure is to be seen as a ceiling in normal circumstances; whereas, therefore, government budgets in the medium term should aim for positions close to balance or in surplus, taking due account of differences in national characteristics;

(5) Whereas the multilateral surveillance procedure of Article 103 (3) and (4) should be developed to provide an early warning system, in which the Council would alert a Member State to the need to take corrective action to prevent a government deficit becoming excessive; whereas this multilateral surveillance procedure should continue to monitor the full range of economic developments in each of the Member States and in the Community as well as the consistency of economic policies with the broad guidelines referred to in Article 103 (2);

(6) 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 second of these elements provides time limits on the implementation of the excessive deficit procedure and a specification of the imposition of sanctions;

(7) Whereas the rules for such a speeding up and clarifying of the excessive deficit procedure have been laid down in Council Regulation [. . .];

(8) Whereas the Member States which will adopt the single currency shall have been found in accordance with Article 109 (j) to have achieved a high degree of sustainable convergence and in particular a sustainable government financial position; whereas the maintenance of sound budgetary positions in these Member States will be required to ensure monetary stability and to create appropriate conditions for the sustained growth of output and employment; whereas these Member States are to be referred to as Member States without a derogation in accordance with Article 109 (k);

(9) Whereas there is a need to build upon the useful experience gained during the first two stages of economic and monetary union with convergence programmes as instruments for setting objectives and providing a basis for monitoring; whereas it is important to place a requirement on Member States without a derogation to submit medium-term budgetary programmes (to be called stability programmes) and it is necessary to define the principal contents of such programmes; whereas it is necessary to lay down time limits for the submission of stability programmes and their updates;

(10) Whereas, in the interest of transparency and informed public debate, Member States without a derogation should be required to make public their stability programmes;

(11) Whereas there is a need to define rules for the examination of stability programmes by the Council;

(12) Whereas the monitoring of stability programmes should be carried out in the framework of multilateral surveillance; whereas particular attention should be given to slippage from the programme targets for the government surplus/deficit; whereas in order to prevent a serious deterioration in the deficit position of a Member State without a derogation it would be appropriate for the Council to recommend that the Member State take corrective action; whereas in the event of persistent budgetary slippage the Council should consider it appropriate to reinforce and make public its recommendation;

(13) Whereas it will also be necessary to make similar rules covering the programmes and surveillance of the other Member States,

HAS ADOPTED THIS REGULATION:

SECTION 1 Stability programmes

Article 1

1. Each Member State without a derogation shall submit to the Council and Commission a 'stability programme`.

2. A stability programme shall contain:

(a) medium-term objective and adjustment path for the government surplus/deficit as a ratio of GDP; expected path for the government debt ratio;

(b) main assumptions about expected ecnonomic developments such as real GDP growth, employment/unemployment, inflation, and other important economic variables;

(c) description of budgetary measures being taken to achieve the objectives of the programme;

(d) commitment to take additional measures when necessary to prevent slippage from targets.

3. The information about paths for the government surplus/deficit ratio and debt ratio and the main economic assumptions referred to in paragraph 2 (a) and (b) shall be on an annual basis and shall cover, as well as the current and preceding year, at least the following three years.

Article 2

1. Stability programmes shall be submitted before 1 January 1999. Thereafter, updated programmes shall be submitted each year, not later than two months after the presentation of annual budget proposals by a Member State government to its national parliament. A Member State for which an initial derogation is subsequently abrogated according to Article 109 (k) (2), shall submit a stability programme within six months of the decision on abrogation.

2. Member States shall make public their stability programmes and updated programmes.

SECTION 2 Surveillance of budgetary positions and early warning system

Article 3

1. Based on assessments by the Commission and the Committee provided for in Article 109 (c), the Council shall examine whether, having regard to specific national characteristics, the medium-term budget objective in the stability programme is close to balance or in surplus, whether the economic assumptions on which the programme is based are realistic and whether the measures being taken and/or proposed are sufficient to achieve the targeted adjustment path towards the medium-term objective.

2. The Council shall make the examination of the stability programme referred to in paragraph 1 within at most two months of the submission of the programme. The Council, on a recommendation from the Commission after consulting the Committee provided for in Article 109 (c), may endorse the stability programme. Where the Council considers that the objectives and contents of a programme should be strengthened, the Council, as provided for by Article 103 (4), shall in general make a recommendation to the Member State concerned to adjust its programme.

3. Updated stability programmes shall be examined by the Committee provided for in Article 109 (c) on the basis of assessments by the Commission; if necessary, updated programmes may also be examined by the Council in accordance with the procedure of paragraphs 1 and 2.

Article 4

1. As part of the multilateral surveillance in accordance with Article 103 (3), the Council shall monitor the implementation of stability programmes, based on information provided by Member States and on assessments by the Commission and the Committee provided for in Article 109 (c), in particular with a view to identifying actual or expected divergence from the medium-term objective (or the adjustment path towards it) set in the stability programme for the government surplus/deficit.

2. In the event of identified divergence from the medium-term objective (or the adjustment path towards it), the Council shall in general, as provided for by Article 103 (4), make a recommendation to the Member State concerned to take budgetary adjustment measures.

3. In the event that in subsequent monitoring the divergence from the medium-term objective (or the adjustment path towards it) is seen to persist or worsen, the Council shall in general make a recommendation to the Member State concerned to take specific corrective action and, as provided for by Article 103 (4), may make its recommendation public.

4. As part of the multilateral surveillance in accordance with Article 103 (3), the Council shall also assess the overall actual and forecast budgetary positions for the EMU area as a whole implied by national stability programmes and updated programmes.

Article 5

In their reports to the European Parliament in accordance with the second subparagraph of Article 103 (4) the President of the Council and the Commission shall include the results of the surveillance carried out in the framework of this Regulation.

Article 6

This Regulation shall enter into force on 1 July 1998.

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