* HT COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 24.06.1997 
COM(97) 305 final 
96/0247 (SYN) 
Re-examined proposal for a 
COUNCIL REGULATION (EC) 
ON THE 
STRENGTHENING OF THE SURVEILLANCE OF BUDGETARY POSITIONS AND THE 
SURVEILLANCE AND COORDINATION OF ECONOMIC POLICIES 
(presented by the Commission pursuant to Article 189 c (d) 
of the EC Treaty) 

EXPLANATORY MEMORANDUM 
The re-examined Commission proposal for a Council Regulations on the strengthening 
of the surveillance of budgetary positions and the surveillance and coordination of 
economic policies results from the second reading made by the European Parliament 
on the Council common position. The re-examined proposal forms part of the stability 
and growth pact and builds on the original proposal adopted by the Commission on 16 
October 1996 in COM(96)496 final. In 19 March 1997 in COM(97)116 final, the 
Commission approved its amended proposal which included, inter alia, the 
amendments proposed by the European Parliament in its first reading which had been 
accepted by the Commission and the agreements reached in the European Council in 
Dublin in December 1996. 
The re-examined proposal includes some of the amendments proposed by the 
European Parliament in its second reading. In particular, the Commission has accepted 
the amendments leading to a single reference in the recitals to the European Council 
Resolution and the inclusion of a specific reference to government investment 
expenditure in the articles of the Regulation. 
The Commission is presenting its re-examined proposal now with a view to final 
agreement on the stability and growth pact at the Amsterdam European Council in 
June. 
£ 
Re-examined proposal for a 
COUNCIL REGULATION (EC) 
ON THE 
STRENGTHENING OF THE SURVEILLANCE OF BUDGETARY POSITIONS AND THE 
SUR VEILLANCEAND COORDINA TION OF ECONOMIC POLICIES 
The Commission re-examined proposal consists of the Council common position C4-
0174/97-96/0247(SYN) with the following amendments: 
Recital (2) now reads: 
(2) Whereas, in the Resolution of the European 
Council of 17 June 1997, the European 
Council, in accordance with Article D of the 
Treaty, has given firm political guidelines in 
order to implement the Stability and Growth \ 
Pact in a strict and timely manner; 
Recital (4) now reads: 
(4) Whereas adherence to the medium-
term objective of budgetary positions close to 
balance or in surplus will allow Member States 
to deal with normal cyclical fluctuations while 
keeping the government deficit within the 3 
^percent of GDP reference value; 
Recital (5) now reads: 
(5) Whereas it is appropriate to 
complement the multilateral surveillance 
procedure of Article 103 (3) and (4) with an 
early warning system, under which the 
Council will alert a Member Sate at an early 
stage to the need to take the necessary 
budgetary corrective action in order to 
prevent a government deficit becoming 
excessive; whereas all Member States have 
committed themselves to take the corrective 
budgetary action they deem necessary to 
meet the objectives of their stability and 
3 
convergence programmes whenever they 
have information indicating actual or 
expected significant divergence from the 
medium-term budgetary objective; 
Recital (10) now reads: 
(10) Whereas in the Resolution of the 
European Council of 17 June 1997, the 
European Council, in accordance with 
Article D of the Treaty, has given firm 
political guidelines in order to establish an 
exchange-rate mechanism in the third stage 
of EMU; whereas the currencies of non 
participating Member States joining the 
new exchange rate mechanism, hereafter 
referred to as ERM2, will have a central 
rate vis-à-vis the euro, thereby providing a 
reference point for judging the adequacy of 
their policies; whereas, so as to enable 
appropriate surveillance in the Council, non 
participating Member States not joining 
ERM2 will nevertheless present policies in 
their convergence programmes oriented to 
stability thus avoiding real exchange rate 
misalignments and excessive nominal 
exchange rate fluctuations; 
Article 3.2.(b) now reads. 
(b) the main assumptions about expected 
economic developments and important 
economic variables which are relevant to 
the realization of the stability programme 
such as government investment 
expenditure, real gross domestic product 
(GDP) growth, employment and inflation; 
Article 5.1. now reads: 
1. Based on assessments by the 
Commission and by the Committee set up by 
Article 109c of the Treaty, the Council shall, 
within the framework of multilateral 
surveillance under Article 103, examine 
whether the medium-term budget objective 
in the stability programme provides for a 
safety margin to ensure the avoidance of an 
excessive deficit, whether the economic 
assumptions on which the programme is 
based are realistic and whether the measures 
being taken and/or proposed are sufficient to 
V 
achieve the targeted adjustment path 
towards the medium-term objective. 
Article 7.2. (b) now reads: 
Article 9.1 now reads: (b) the main assumptions about expected 
economic developments and important 
economic variables which are relevant to 
the realization of the convergence 
programme such as government investment 
expenditure, real gross domestic product 
(GDP) growth, employment and inflation; 
1. Based on assessments by the 
Commission and by the Committee set up 
by Article 109(c) of the Treaty, the Council 
shall, within the framework of multilateral 
surveillance under Article 103, examine 
whether the medium-term budget objective 
provides for a safety margin to ensure the 
avoidance of an excessive deficit, 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 and to achieve 
sustained convergence; 
s 
Amendments proposed by the European Parliament in second reading 
and not accepted by the Commission 
The Commission did not accept amendments 4 (second part), 6 (first part), 7, 9 (first part) 
and 10, which are presented in an annex. 
The reasons why the Commission did not accept these amendments are the following : 
Amendments not accepted 
Amendment 4 (second part) 
Amendment 6 (first part) 
Amendment 7 
Amendment 9 (first part) 
Amendment 10 Justification 
The proposed phrase is of a subjective nature. 
Introducing in this Regulation, which deals with the 
early-warning part of the Pact, reference to the 
procedures of Article 104c is not appropriate. 
It is not clear what is meant by a government deficit 
in conformity with the provisions of the Treaty;- in 
addition, the inclusion of the word possibly was not 
accepted because both participating and non-
participating Member States have agreed that the 
medium-term target for the deficit must be close to 
balance or surplus. 
Same justification as for Amendment 6, but for the 
convergence programmes. 
The amendment seems to imply that, if the 
convergence programme is being properly 
implemented, emergency measures could put it off 
track. If the pressures on the currency are 
unwarranted they should be temporary and 
successfully combated through temporary measures 
(e.g. increase in domestic interest rates). 
AMENDMENTS NOT ACCEPTED BY THE COMMISSION 
(Amendment 4 ) 
Recital (10) ANNEX 
(10) whereas in the Resolution of the 
European Council of 17 June 1997. the 
European Council, in accordance with Article D 
of the Treaty, has given firm political guidelines 
in order to establish an exchange-rate 
mechanism in the third stage of EMU; whereas 
the currencies of non participating Member 
States joining the new exchange rate 
mechanism, hereafter referred to as ERM2, will 
have a central rate vis-à-vis the euro, there by 
providing a reference point for judging the 
adequacy of their policies; whereas this 
mechanism will also assist them to resist 
unwarranted pressures in the foreign-exchange 
markets; whereas, so as to enable appropriate 
surveillance in the Council, non participating 
Member States not joining ERM2 will 
nevertheless present policies in their 
convergence programmes oriented to stability 
thus avoiding real exchange rate misalignments 
and excessive nominal exchange rate 
fluctuations; accepted 
(Amendment 6) 
Article 5(1) 
1. Based on assessments by the Commission 
under the procedure provided for in Article 
104(cW3^ and (5) and by the Committee set up 
by Article 109c of the Treaty, the Council shall, 
within the framework of multilateral surveillance 
under Article 103, examine whether the 
medium-term budget objective in the stability 
programme provide for a safety margin to accepted 
3 
(Amendment 7) 
Article 7(2)(a) 
(a) the medium-term objective for the 
budgetary position for a government deficit to 
be in conformity with the provisions of the 
Treaty and possibly be close to balance or in 
surplus and the adjustment path towards this 
objective for the general government 
surplus/deficit; the expected path for the 
general government debt ratio; the medium-
term monetary policy objectives; the 
relationship of those objectives to price and 
exchange rate stability; 
(Amendment 9) 
Article 9(1) 
1. Based on assessments by the Commission 
under the procedure provided for in Article 
104(cy3) and (5) and by the Committee set up 
by Article 109c of the Treaty, the Council shall, 
within the framework of multilateral 
surveillance under Article 103, examine 
v/hether the medium-term budget objective 
provide for a safety margin to ensure the I accepted 
avoidance of an excessive deficit, 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 and to 
achieve sustained convergence; 
(Amendment 10) 
Article 10(1) second subparagraph 
In addition, the Council shall monitor the 
economic policies of non participating Member 
States in the light of convergence programme 
objectives with a view to ensure that their 
policies are geared to stability and thus to 
avoid real excliange rate misalignments and 
excessive nominal exchange rate fluctuations» 
and to take account of the emergency measures 
needed to resist unwarranted pressures so as to 
stabilise and thus ensure the smooth 
functioning of exchange markets. 
ISSN 0254-1475 
COM(97) 305 final 
DOCUMENTS 
EN 01 IO 
Catalogue number : CB-C097-292-EN-C 
ISBN 92-78-21465-5 
Office for Official Publications of the European Communities 
L-2985 Luxembourg