Amended proposal for a COUNCIL REGULATION (EC) on the strengthening of the surveillance and coordination of budgetary policies
Date: 1997-03-19
Institutions: European Commission
Subjects: Economic and Monetary Union, budget deficit, budget policy, coordination of EMU policies, economic convergence

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  19.03.1997 
COM(97)  116 final 

96/0247 (SYN) 

Amended  proposal for  a 

COUNCIL  REGULATION  (EQ 

on the strengthening of the surveillance and coordination of budgetary policies 

(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. 

4 

Amended proposal for a 

COUNCIL REGULATION (EC) No... 

on the strengthening of the surveillance and coordination of budgetary policies 

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  for  economic  and  monetary  union  to  function  smoothly  it  is  necessary  not  only that  the 
convergence  criteria be fulfilled  but  also that  economic  and budgetary  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; 

(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 n°  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  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  second  of these  elements  provides  time 
limits on the  implementation  of the  excessive  deficit  procedure which  will  apply  to  all Member  States 
and a specification  of the imposition  of sanctions, which will apply only to Member  States adopting the 
single currency; 

d  ^ 

(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  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; 

(9)  Whereas  the  Member  States  which  will  adopt  the  single  currency  shall  have  been  found  in 
accordance  with  Article  109j  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  participating  Member  States;  whereas  it  is  important  to  place  a  requirement  on 
participating  Member  States  to  submit  medium-term  budgetary  programmes  (to  be  called  stability 
programmes) and it is necessary to define the principal contents of such programmes; 

(10)  Whereas  the  Member  States  not  adopting  the  single  currency  will  nevertheless  need  to  pursue 
policies  aimed  at  achieving  stable  prices,  sound  public  finances  and  monetary  conditions  and  a 
sustainable  balance  of  payments  in  accordance  with  the  guiding principles  established  in  Article 3a  of 
the Treaty  and  with  a  view  to  possible  future  adoption  of  the  single  currency;  whereas  these  Member 
States  arc  to  be  referred  to  as  non-participating  Member  States;  whereas  it  is  important  to  place  a 
requirement on these Member States to submit convergence programmes and it is necessary to define  the 
principal contents of such programmes; 

(11)  Whereas  it  is  necessary  to  lay  down  time  limits  for  the  submission  of  stability  programmes  and 
convergence programmes and their updates; 

(12)  Whereas  in  the  interest  of  transparency  and  informed  public  debate  Member  States  should  be 
required to make public their stability programmes or convergence programmes; 

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

(14)  Whereas  the  monitoring  of stability  programmes  and  convergence  programmes  should  be  carried 
out  as  part  of  the  multilateral  surveillance  within  the  framework  of  the  broad  economic  policy 
guidelines; whereas particular attention should be given to slippages from the programme targets for the 
general  government  surplus/deficit  which  risk  jeopardising  the  proper  functioning  of  economic  and 
monetary  union; whereas  in order to prevent  a serious deterioration  in the deficit  position  of a Member 
State  it  would  be  appropriate  for  the  Council  to  recommend  that  the  Member  State  take  corrective 
action;  whereas  in  the event  ol" persistent budgetary  slippage the  Council  should  consider  it  appropriate 
to  reinforce  and  make  public  its  recommendation;  whereas  for  non-participating  Member  States  such 
recommendations  might also deal with measures to prevent slippage from other convergence objectives; 

(15)  Whereas the  requirements  to be placed  on participating  and  non-participating  Member  States  and 
the  rules  for  monitoring  them,  although  similar  in  many  respects,  are  to  be  differentiated  because 
non-participating  Member  States may not yet have achieved  a high  degree  of  sustainable  convergence; 
whereas  the Regulation  therefore  contains  separate  chapters  dealing  firstly  with participating  Member 
States  and  their  stability  programmes  and  then  with  non-participating  Member  States  and  their 
convergence programmes, 

HAS ADOPTED THIS REGULATION: 

CHAPTER I 

Purpose and  definitions 

Article 1 

This  Regulation  sets  out  the  rules  covering  the  submission,  examination  and  monitoring  of  stability 
programmes and convergence  programmes  as part  of the multilateral  surveillance to be undertaken by 
the  Council  so as  to prevent  at  an  early  stage  the  occurrence  of  excessive  government  deficits  and  to 
promote  the  surveillance  and  coordination  of  economic  policies  within  the  framework  of  the  broad 
economic policy guidelines. 

Article  2 

For  the  purpose  of  this  Regulation  "participating  Member  States"  shall  mean  those  Member  States 
which  adopt the  single currency  in accordance with the Treaty and  "non-participating  Member  States" 
shall mean those which have not adopted the single currency. 

CHAPTER II 

Stability programmes 

SECTION 1 

Submission and contents of stability programmes 

Article 3 

1.  Each  participating  Member  State  shall  submit  to  the  Council  and  the  Commission  information 
necessary for the purpose of the regular multilateral surveillance under Article 103 in the form of a 
"stability programme". 

2.  A stability programme shall contain the following  information: 

(a) 

(b) 

the medium-term objective for the budgetary position of close to balance or in surplus and the 
adjustment  path towards this objective for the general government  surplus/deficit  as a ratio to 
GDP and the expected path for the general government debt ratio, 
the  main  assumptions  about  expected  economic  developments  and  important  economic 
variables  which  are  relevant to the  realization  of the  stability programme,  such  as real  GDP 
growth, employment and  inflation, 

(c)  a description  of budgetary and other economic policy  measures being taken  and/or  proposed 
to achieve the objectives  of the programme  and,  in the case of the main budgetary  measures, 
an assessment of their quantitative effects  on the/budget, 

(d)  an analysis of how changes in the main economic assumptions would affect  the budgetary and 

debt position, 

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

3.  The information  about paths for the general 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. 

3 

Article 4 

1.  Stability  programmes  shall  be  submitted  before  1  January  1999. Thereafter,  updated  programmes 
shall  be  submitted  annually.  A Member  State  adopting  the  single  currency  at  a  later  stage  shall 
submit a stability programme within six months of the Council decision on its participation  in the 
single currency. 

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

SECTION 2 

Surveillance of budgetary positions and early warning system 

Article 5 

1.  Based  on  assessments  by  the  Commission  and  the  Committee  provided  for  in  Article  109c,  the 
Council  shall,  within  the  framework  of  multilateral  surveillance  under  Article  103,  examine 
whether,  having  regard  to  specific  national  characteristics  of  participating  Member  States,  the 
medium-term  budgetary  objective  in the  stability  programme  is compatible with the safety  margin 
needed  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  budgetary 
objective.  The Council shall examine whether the contents of the stability programme facilitate  the 
closer  coordination  of economic policies  and  whether  the  economic policies  of the  Member  State 
concerned are consistent with the broad economic policy guidelines. 

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  and  after  consulting  the  Committee  provided  for  in 
Article  J 09c,  shall  as  a  rule  deliver  an  opinion  on  the  programme.  Where  the  Council  considers 
that the objectives and contents of a programme should be strengthened, the Council shall as a rule 
make  a  recommendation  in  accordance  with  Article  103(4)  to  the  Member  State  concerned  to 
adjust  its programme. 

3.  Updated stability programmes shall be examined by the Committee provided for  in Article  109c 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  I and 2. 

Article 6 

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

In  the  event  of  identified  significant  divergence  of the  budgetary  position  from  the  medium-term 
budgetary  objective,  or  the adjustment  path  towards  it,  the  Council  shall  as a  rule  with  a view to 
giving  an  early  warning,  if  needed  to  prevent  the  occurrence  of  an  excessive  deficit,  make  a 
recommendation  in  accordance  with  Article  103(4)  to  the  Member  State  concerned  to  take  the 
necessary adjustment  measures. 

In  the  event  that  in  subsequent  monitoring  the  divergence  of  the  budgetary  position  from  the 
nicdium-tcrni objective,  or the adjustment  path towards it, is seen to persist  or worsen,  the  Council 
shall  as a  rule  make a  recommendation  to the  Member  State  concerned  to  take  prompt  corrective 
measures and, as provided for by Article  103(4), may make its recommendation public. 

CHAPTER III 

Convergence programmes 

SECTION 3 

Submission and contents of convergence programmes 

Article 7 

1.  Each non-participating Member State shall submit to the Council and the Commission  information 
necessary for the purpose of the regular multilateral surveillance under Article  103 in the form  of a 
"convergence programme". 

2.  A  convergence  programme  shall  contain  the  following  information,  in  particular  on  variables 

related to the convergence criteria: 

(a) the medium-term  objective  for  the budgetary position of close to balance  or in  surplus  and  the 
adjustment  path  towards this objective  for  the  general  government  surplus/deficit  as  a  ratio  to 
GDP; the expected path for the general  government  debt ratio; and the medium-term  monetary 
policy objectives, particularly with regard to the inflation  rate and the exchange rate, 

(b) the  main  assumptions  about  expected  economic  developments  and  important  economic 
variables which are relevant to the realization of the convergence programme, such as real  GDP 
growth and employment, 

(c)  a description of budgetary  and other economic policy measures being taken and/or  proposed  to 
achieve the objectives  of the programme  and,  in the  case  of the  main  budgetary  measures,  an 
assessment of their quantitative effects  on the budget, 

(d) an analysis of how changes in the main  economic assumptions would  affect  the budgetary  and 

debt position, 

(e)  commitment  to  take  additional  measures  when  necessary  to  prevent  slippage  from  budgetary 

targets and other medium-term objectives, 

3.  The information  about  paths  for the general  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 8 

1.  Convergence  programme  shall  be  submitted  before  1 January  1999.  Thereafter,  updated 

programmes shall be submitted annually. 

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

SECTION 4 

Surveillance of budgetary positions and early warning system 

Article 9 

1.  Based  on  assessments  by  the  Commission  and  the  Committee  provided  for  in  Article  109c,  the 
Council  shall,  within  the  framework  of  multilateral  surveillance  under  Article  103,  examine 
whether,  having regard to specific  national  characteristics  of non-participating  Member  States, the 
medium-term  budgetary  objective  is  compatible  with  the  safety  margin  needed  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  budgetary  objective  and  to  achieve 
sustained  convergence.  The  Council  shall  examine  whether  the  contents  of  the  convergence 
programme  facilitate  the  closer  coordination  of  economic  policies  and  whether  the  economic 
policies of the Member State concerned are consistent with the broad economic policy guidelines. 

2 

The Council  shall make the examination of the convergence 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  and  after  consulting  the  Committee  provided  for  in 
Article  109c,  shall  as  a  rule  deliver  an  opinion  on the  programme.  Where  the  Council  considers 
that the objectives and contents of a programme should be strengthened,  the Council  shall as a rule 
make  a  recommendation  in  accordance  with  Article  103(4)  to  the  Member  State  concerned  to 
adjust  its programme. 

3.  Updated  convergence  programmes  shall  be  examined  by  the  Committee  provided  for  in 
Article  109c  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 10 

1.  As  part  of  the  multilateral  surveillance  in  accordance  with  Article  103(3),  the  Council  shall 
monitor the  implementation  of convergence programmes,  on the basis of information  provided by 
non-participating  Member  States  and  of  assessments  by  the  Commission  and  the  Committee 
provided for  in Article  109c, in particular with a view to identifying  actual or expected  significant 
divergence  of  the  budgetary  position  from  the  medium-term  objective,  or  the  adjustment  path 
towards  it,  set  in  the  programme  for  the  general  government  surplus/deficit.  In  addition,  the 
Council  shall  monitor  inflation  and  exchange  rate  developments  in  the  light  of  convergence 
programme objectives. 

2. 

3. 

In  the  event  of  identified  significant  divergence  of the  budgetary  position  from  the  medium-term 
budgetary  objective,  or  the  adjustment  path  towards  it,  the  Council  shall  as  a  rule  with  a view to 
giving  an  early  warning,  if  needed  to  prevent  the  occurrence  of  an  excessive  deficit,  make  a 
recommendation  in  accordance  with  Article  103(4)  to  the  Member  State  concerned  to  take  the 
necessary adjustment  measures,. 

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

CHAPTER IV 

Common provisions 

Article 11 

Without prejudice to the assessment of the budgetary positions of individual Member States, the Council, 
as part of the multilateral surveillance in accordance with Article  103(3),  shall also assess the budgetary 
stance  implied  by  stability  and  convergence  programmes  and  updated  programmes  for  the  single 
currency area and for the European Community as a whole. 

Article 12 

In  their  reports  to  the  European  Parliament  in  accordance  with  the  second  sub-paragraph  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. 

This Regulation shall enter into force on 1  July 1998. 

Article 13 

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

ISSN 0254-1475 

COM(97) 116 final 

DOCUMENTS 

EN 

01  06  09 

Catalogue number  : CB-CO-97-105-EN-C 

ISBN 92-78-17145-X 

Office  for Official  Publications of the European Communities 

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