Amended proposal for a COUNCIL REGULATION (EC) on speeding up and clarifying the implementation of the excessive deficit procedure
Date: 1997-03-19
Institutions: European Commission
Subjects: Economic and Monetary Union, budget deficit, budget policy, economic convergence, economic growth

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  19.03.1997 
COM(97)l 17 final 

96/0248 (CNS) 

Amended  proposal  for  a 

COUNCIL REGULATION (EC) 

on speeding up and clarifying the implementation of the excessive deficit  procedure 

(presented  by the Commission  pursuant to Article  189 a (2) 
of the EC-Treaty) 

EXPLANATORY  MEMORANDUM 

The amended Commission  proposals for Council Regulations on the strengthening of the 
surveillance and coordination of budgetary policies  and  on speeding up and clarifying 
the  implementation  of  the  excessive deficit procedure  form  part  of  the  Stability  and 
Growth  Pact.  They  are  revised  versions  of  the  proposals  earlier  adopted  by  the 
Commission  on  16 October  1996  in  COM(96)496 final.  They  include  the  amendments 
proposed by the European Parliament which have been accepted by the Commission and 
the agreements  reached  in the European  Council  in Dublin  in December  1996. The  first 
proposed  Regulation  also  now  includes  the  proposals  of  the  Commission  on  non-
participating  Member  States  and  their  convergence  programmes,  in  response  to  the 
invitation  from  the Dublin European Council. Both texts further  incorporate a number of 
drafting  changes agreed  by the Commission  in the light of the ongoing discussions  in the 
Council Working Group on EMU which has been examining the proposals. 

The  Commission  is  presenting  these  proposals  now  in  advance  of  the  informal  Ecofin 
Council  at  Noordwijk  in  April  and  with  a view  to  final  agreement  on  the  stability  and 
growth  pact at the Amsterdam European Council in June. 

st 

Amended proposal for a 

COUNCIL REGULATION (EC) 

on speeding up and clarifying  the implementation of the excessive deficit  procedure 

THE COUNCIL OF THE EUROPEAN UNION 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular  the  second 
subparagraph of Article  104c, paragraph  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, 

(1)  Whereas  for  economic  and  monetary  union  to  function  smoothly,  it  is  necessary  not  only  that  the 
convergence  criteria  be  fulfilled,  but  also  that  economic  and  fiscal  performances  prove  stable  and 
durable; whereas  the maintenance  of sound budgetary positions in the Member  States contributes  in  the 
medium  and  long  term to the  creation  of 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 safeguard  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;  whereas  it  is  necessary  to 
define  the concept of an exceptional and temporary  excess over the reference value when resulting  from 
an unusual event or a severe economic downturn as referred  to in Article  104c(2); 

(3)  Whereas  the  Protocol  N°  5  on  the  excessive  deficit  procedure  contains  provisions  relating  to  the 
implementation  of the procedure foreseen  in Article  104c; whereas further  implementing provisions  are 
necessary;  whereas,  according  to the  second  subparagraph  of Article  104c(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; 

(4) Whereas in accordance with Article  109k(3) of the Treaty, paragraphs  9 and  11 of Article  104c shall 
not  apply  to  the  Member  States  with  a  derogation;  whereas  in  accordance  with  paragraph  2  of 
Protocol No.  12 on  certain  provisions relating  to Denmark,  paragraphs  9  and  11 of  Article  104c  shall 
not  apply  to  Denmark  as  long  as  it  has  not  withdrawn  the  notification  made  in  the  context  of  the 
Edinburgh  decision  of  12  December  1992,  that  it  will  not  participate  in  the  third  stage;  whereas 
paragraph  2 of Protocol  No.  11 on certain provisions  relating  to the  United  Kingdom  of  Great  Britain 
and Northern  Ireland  stipulates that, inter  alia, paragraph  5 of that  said Protocol shall have effect  if the 
United  Kingdom  notifies  that  Council  that  it  does  not  intend  to  move  to  the  third  stage;  whereas 
paragraph  5  stipulates  that,  inter  alia,  paragraphs  1,  9 and  11 of  Article  104c  of  the  Treaty  shall  not 
apply to the United  Kingdom; 

3> 

(5)  Whereas  there  is  ;i  need  to  establish  definitions  and  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  104c of the Treaty could, on an annual  basis,  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; 

(6)  Whereas  the  present  regulation  forms  part  of the stability  and growth pact  for  ensuring  budgetary 
discipline  in  stage  three  of  EMU;  whereas  the  pact  includes  two  main  elements  (i)  strengthening  the 
surveillance  and  coordination  of  budgetary  policies  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 
becomes excessive; 

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

(8)  Whereas  the  reinforced  surveillance  in the terms of Regulation  [...]  together  with  the  Commissions 
monitoring  of budgetary  positions  in  accordance  with  paragraph  2 of article  104c should  facilitate  the 
effective  and rapid implementation of the excessive deficit procedure; 

(9) Whereas, in the light of the above, an overall maximum period often  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; 

(10) Whereas the Council  recommendation  for the correction  of an excessive deficit  or the  later  steps of 
the excessive deficit  procedure  should  have been anticipated by the Member  State concerned, which will 
have  had  an  early  warning  and  thus  a  long  period  to  prepare  corrective  measures.  Whereas  the 
seriousness  of  moving  into  excessive  deficit  in  stage  three  should  call  for  urgent  action  from  all  those 
involved; 

(11)  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  excessive  deficit  procedure  should  enable  parliaments  to  play  their  full  role;  whereas  the 
national  decision-making  process in accordance with article 3 of the Protocol  n° 5, should  not,  as such, 
hinder the expeditious implementation of the excessive deficit  procedure; 

(12)  Whereas  it  is  appropriate  to  establish  deadlines  in  the  Council  recommendation  under  Article 
104c(7)  for  the taking  of effective  action by the  Member  State  concerned  and  for  the  correction  of the 
excessive  deficit; 

( I "0 Whereas the aim of the excessive deficit  procedure is to provide incentives to Member  States to take 
corrective action  and  in that  case the procedure should  be held  in abeyance; whereas the procedure  shall 
immediately  be resumed  it the action  is not being implemented  or is proving to be inadequate; 

(14) Whereas  it is considered  that,  in order to ensure that  the excessive deficit  procedure has a  sufficient 
deterrent  effect,  a  nou-interest-bearing  deposit  of appropriate  size should  be  required  from  the  Member 
State concerned  when  the Council  decides to impose a sanction; whereas  the excessive deficit  procedure 
is an annual  procedure and sanctions could therefore be imposed on an annual basis; 

M 

(15)  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 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  annual 
amount, as a percent of GDP, to the sanctions for the latter not to have counterproductive  effects; 

(16)  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  within  two years  of the  decision  to  impose  a 
deposit, then it is appropriate to intensify  the sanctions; whereas it is therefore  appropriate to  transform 
the deposit into a fine; 

(17)  Whereas  significant  progress  in  correcting  the  excessive  deficit  should  allow  for  some  lifting  of 
sanctions  in  accordance  with  paragraph  12 of article  104c; whereas  the  abrogation  of  all  outstanding 
sanctions should only occur once the excessive deficit has been fully corrected; 

(18)  Whereas  Council  Regulation  EC  n°  3605/93  on  the  application  of the  Protocol  on  the  excessive 
deficit procedure annexed to the Treaty establishing the European Community1 sets detailed rules for the 
reporting of budgetary data by the Member States; 

(19)  Whereas,  according  to  Article  109f(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: 

SECTION 1 

Definitions 

Article  1 

This Regulation  sets out the provisions to  speed up  and  clarify  the  excessive  deficit  procedure,  having 
the objective to deter excessive general government deficits and, if they occur, to correct them promptly. 

Article  2 

1.  The  excess  of  a  government  deficit  over  the  reference  value  shall  be  considered  exceptional  and 
temporary,  in  accordance with  Article  104c(2a)  2nd  indent,  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 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. 

1  OJn°L  332, 31.12.93, p.7. 

r 

2.  The Commission  when  preparing a report under  Article  104c(3)  shall  consider,  as a  rule,  an  excess 
of  the  reference  value  resulting  from  an  economic  downturn  to  be  exceptional  only  if  there  is  an 
annual fall of real GDP of at least 2%. 

3.  The Council when deciding, according to Article  104c(6), whether an excessive deficit  exists shall in 
its  overall  assessment  take  into  account  any  observations  made  by  the  Member  State  concerned 
showing  that  an  annual  fall  of  real  GDP  of  less  than  2%  is  nevertheless  exceptional  in  light  of 
further  supporting  evidence,  in particular  on the  abruptness  of the downturn  or  on the  accumulated 
loss of output  relative to past trends. 

SECTION 2 

Speeding up the excessive deficit  procedure 

Article 3 

1.  Within  two weeks of the adoption  by the  Commission  of a  report  issued  in accordance with  Article 
104c(3),  the  Economic  and  Financial  Committee  shall  formulate  an  opinion  in  accordance  with 
Article  104c(4). 

2.  The Commission, taking fully  into account the opinion referred  to in paragraph  1 and  if it  considers 
that  an  excessive deficit  exists, shall address an opinion and a recommendation  to the  Council  for a 
decision. 

3.  The Council  shall decide on the existence of an excessive deficit  in accordance with Article  104c(6), 
within  three  months of the reporting dates established  in Articles 4.2 and  4.3 of Council  Regulation 
EC/3605/93.  Where  it  decides  on  the  existence  of  an  excessive  deficit 
in  accordance  with 
Article  104c(6)  the  Council  at  the  same  time  shall  issue  recommendations  to  the  Member  State 
concerned  in accordance with  Article  104c(7). 

4.  The Council recommendation  issued in accordance with Article  104c(7) shall establish a deadline  for 
effective  action  to be taken  by the Member  State concerned  and  a deadline  for  the correction  of the 
excessive deficit,  which  should be completed  in the year following  the  identification  of an  excessive 
deficit  unless special circumstances are given. 

Article  4 

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

2.  The  Council,  when  considering  whether  effective  action  has  been  taken  in  response  to  its 
recommendations  issued  in  accordance  with  Article  104c(7),  shall  base  its  assessment  on  publicly 
announced decisions by the Government  of the Member State concerned.  If these publicly  announced 
decisions  are  not  legally  enforced,  or  if  the  budgetary  impact  of  these  decisions  is  substantially 
weakened  during  the adoption  process, then  the Council  shall  resume the excessive deficit  procedure 
immediately. 

G 

Article S 

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

Article 6 

If a Member State fails  to act  in compliance with the successive decisions of the Council under  Articles 
104c(7) and  Article  104c(9), the  Council  shall,  in  accordance with  Article  104c(ll),  decide to  impose 
sanctions.  Subject  to the provisions in  Article  9 of this regulation,  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 104c(9). 

Article 7 

Subject to the provisions in Article 9 of this regulation, the decision of the Council to impose sanctions, 
shall  be  taken  within  ten  months  of the  reporting  date  of  the  figures  confirming  the  existence  of  an 
excessive  deficit.  An  expedited  procedure  shall  be  used  in  the  case  of  a  deliberately  planned  deficit 
which the Council decides is excessive. 

Article  8 

Any Council decision to intensify  sanctions (other than the imposition of fines dealt with in Article  13 of 
this  Regulation)  in  accordance  with  Article  104c(ll),  or  to  abrogate  some  or  all  of  its  decisions  in 
accordance  with  Article  104c(12),  shall  be  taken  no  later  than  two  months  after  the  reporting  dates 
pursuant to Council Regulation EC/3605/93. 

SECTION 3 

Abeyance and monitoring 

Article 9 

The  excessive  deficit  procedure  shall  be held  in  abeyance  if  a  Member  State  takes  effective  action  in 
response to a recommendation  under Article  104c(7) or a notice issued under Article  104c(9). 

Article 10 

1.  The  Commission  and  the  Council  shall  monitor  the  implementation  of  action  taken  by  Member 
States in response to recommendations issued under Article  104c(7) and  notices issued under  Article 
104c(9).  If  action  is  not  being  implemented,  or  in  the  Council's  view  is  ineffective  thereby 
weakening  its  budgetary  impact,  the  Council  shall,  as  a  rule,  proceed  immediately  to  a  decision 
under Article  104c(9) or Article  104c(ll) respectively. 

2.  If actual data indicate that an excessive deficit has not been corrected within the time-limits  specified 
either  in  recommendations  issued under  Article  104c(7) or notices issued under  Article  104c(9), the 
Council shall, as a rule, proceed immediately to a decision under Article  104c(9) or Article  104c(l 1) 
respectively. 

H 

SECTION 4 

Sanctions 

Article  11 

Whenever  the  Council  decides  to  apply  sanctions  to  a  Member  State  in  accordance  with  Article 
104c(ll),  a  non-interest-bearing  deposit  shall,  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  104c(l 1). 

Article  12 

The  amount  of  the  deposit  shall  comprise  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  and  the 
reference value in the year preceding the decision to impose sanctions. An upper limit of 0.5% of GDP is 
set for the annual amount of deposits. 

Article  13 

If the  excessive  deficit  in the view of the  Council has  not been  corrected,  a  deposit,  as  a  rule,  shall be 
converted  to  a  fine  two  years  after  the  decision  to  impose  that  deposit  in  accordance  with  Article 
104c(l 1), without prejudice to Article 9 of this Regulation. 

Article 14 

In  accordance  with  Article  104c(12),  the  Council  may  decide  to  abrogate  some  or  all  the  sanctions 
defined  in the first and second indents of Article  104c(l 1) to the extent that the Member State is making 
significant,  though not yet sufficient  progress in correcting the excessive  deficit. 

Article  15 

In accordance with Article  104c(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 13 of this 
Regulation shall not be returned to the Member State concerned. 

Article 16 

Deposits as specified  in  Article  12 of this Regulation  shall be lodged with the  Commission.  Interest  on 
the deposits and fines specified  in Article  13 of this Regulation constitute resources of the general budget 
of the European  Communities. 

This Regulation shall enter into force on 1  January 1999. 

Article  17 

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

ISSN 0254-1475 

COM(97) 117 final 

DOCUMENTS 

EN 

01  06  09 

Catalogue  number  :  CB-CO-97-106-EN-C 

ISBN 92-78-17156-5 

Office  for Official  Publications of the European Communities 

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