Communication from the Commission to the European Parliament Pursuant to the first subparagraph of Article 252 (b) of the EC-Treaty Common Position of the Council on the proposal for a Council Regulation amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
Date: 2005-06-17
Institutions: European Commission
Subjects: Community budget, Economic and Monetary Union, coordination of EMU policies, economic convergence, economic policy, multilateral surveillance

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 17.06.2005 
COM(2005) 272 final 

2005/0064(SYN) 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT 

Pursuant to the first subparagraph of Article 252 (b) of the EC-Treaty 

Common Position of the Council on the proposal for a Council Regulation amending 
Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary 
positions and the surveillance and coordination of economic policies 

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1. 

BACKGROUND 

The Commission launched the debate on the reform of the Stability and Growth Pact (SGP) 
with  its  Communication  of  3  September  2004  on  “strengthening  economic  governance  and 
clarifying  the  implementation  of  the  Stability  and  Growth  Pact”.  On  20  March  2005,  the 
Council  reached  political  agreement  on  a  reform  of  the  SGP  and  adopted  a  report  entitled 
“Improving  the  implementation  of  the  Stability  and  Growth  Pact”.  The  European  Council 
endorsed this report in its conclusions of 23 March 2005, which stated that the report updates 
and  complements  the  SGP.  In  these  conclusions,  the  European  Council  invited  the 
Commission to bring forward proposals for amending the Council Regulations (EC) 1466/97 
and 1467/97 in accordance with the Council report. 

The  Proposal  for  a  Council  Regulation  amending  Regulation  (EC)  No  1466/97  on  the 
strengthening of the surveillance of budgetary positions and the surveillance and coordination 
of economic policies was adopted by the Commission on 20 April 2005 and transmitted to the 
Council  on  21  April  2005.  It  was  accompanied  by  a  Commission  Proposal  for  a  Council 
Regulation  amending  Regulation  (EC)  No  1467/97  on  speeding  up  and  clarifying  the 
implementation of the excessive deficit procedure. The reform package is completed with the 
contribution by the Commission services, on 3 May 2005, for the preparation by the Council 
of a revised Code of Conduct. 

The  Opinion  of  the  European  Parliament  on  first  reading  (Karas  report)  was  adopted  on  9 
June 2005.  

The Council adopted its Common Position on the proposed Regulation on 13 June 2005.  

2. 

PURPOSE OF THE COMMISSION PROPOSAL 

The object of the Commission Proposal is to amend Regulation (EC) No 1466/97 in order to 
allow the full application of the agreement on improving the implementation of the Stability 
and  Growth  Pact.  The  Commission  proposal  also  includes  a  number  of  technical 
modifications to Regulation (EC) N° 1466/97 in order to ensure consistency with the Council 
report  of  20  March  2005  and  to  smoothen  the  examination  of  Stability  and  Convergence 
Programmes.  

3. 

COMMENTS ON THE COMMON POSITION 

3.1 First reading by the European Parliament  

The  European  Parliament  adopted  a  series  of  amendments  underlying  the  importance  of 
reliable fiscal statistics – including the possibility for the Commission to undertake financial 
audit  missions  -,  proposing  to  compare  data  provided  by  Member  States  with  the  one  of 
national  central  banks  and  of  the  European  Central  Bank,  reinforcing  the  monitoring  of  the 
achievement of the medium-term budgetary objectives (MTOs), and giving more emphasis on 
government debt dynamics in the assessment of stability and convergence programmes. 

3.2 General observations on Common Position 

Besides  a  number  of  mainly  drafting  changes,  the  Common  Position  differs  from  the 
Commission Proposal on the following issues:  

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–  The procedure for setting the country-specific medium-term objectives. The agreement on 
the  SGP  reform  foresees  that  MTOs  will  be  differentiated  across  countries.  Setting 
differentiated  MTOs  requires  economic  judgement,  and  consistent  application  of  agreed 
principles. The latter can only be achieved if the MTOs are discussed in the context of a 
common  procedure.  The  Commission  had  proposed  (Article  2a  of  the  Commission 
proposal)  that  the  country-specific  MTOs  should  be  set  in  the  context  of  the  procedure 
referred  to  in  Article  99  (2)  of  the  Treaty.  While  agreeing  on  the  need  for  a  common 
procedure, the Council considered that the latter could be achieved if each Member State 
presents the MTO in its Stability or Convergence Programme, following a discussion in the 
Economic and Financial Committee. In their assessment and opinion on the programmes, 
the  Commission  and  the  Council  would  assess  whether  the  MTOs  presented  by  Member 
States are appropriate.  

–  Taking  into  account  pension  reforms  introducing  a  multi-pillar  system  that  includes  a 
mandatory, fully funded pillar. The Council introduced clarifying provisions on this issue 
in  the  Regulation  (first  paragraphs  of  Articles  5  and  9),  specifying  that  Member  States 
implementing such reforms should be allowed to deviate from the adjustment path to their 
medium-term budgetary objective or from the objective itself, with the deviation reflecting 
the  net  cost  of  the  reform  to  the  publicly  managed  pillar,  under  the  condition  that  the 
deviation  remains  temporary  and  that  an  appropriate  safety  margin  with  respect  to  the 
deficit reference value is preserved.  

–  For  euro-area  and  ERM  II  Member  States,  insertion  of  a  numerical  value  for  the  fiscal 
adjustment of countries which have not reached the MTO. The Commission had proposed 
to insert in the Regulation (first paragraph of Article 5) the principle of a minimum annual 
fiscal  effort  for  countries  which  have  not  yet  achieved  the  MTO,  without  specifying  a 
value  for  this  effort.  The  Council  went  further  by  inserting  in  the  Regulation  (first 
paragraphs of Articles 5 and 9) the numerical value of 0.5% of GDP as the benchmark for 
the  annual  improvement  of  cyclically-adjusted  balance,  net  of  one-offs  and  other 
temporary measures, to be pursued by euro-area and ERM II Member States which have 
not  reached  the  MTO.  This  numerical  value  was  mentioned  in  the  Council  report  of  20 
March 2005. 

–  The  range  for  the  MTOs  of  euro-area  and  ERM  II  Member  States.  The  Commission 
proposal did not include any reference to a range for the MTOs. The Council decided to 
insert  provisions  in  the  Regulation  (Article  2a)  stating  that,  for  euro-area  and  ERM  II 
Member  States,  the  country-specific  MTO  should  be  specified  within  a  defined  range 
between –1% of GDP and balance or surplus, in cyclically adjusted terms, net of one-offs 
and  other  temporary  measures.  This  range  was  mentioned  in  the  Council  report  of  20 
March 2005. 

The  Council,  in  its  Common  Position,  did  not  insert  in  the  Regulation  provisions  reflecting 
the  amendments  adopted  by  the  European  Parliament.  However,  it  should  be  noted  that  the 
changes adopted by the Council with respect to the Commission proposal go in the direction 
of further clarifying the implementation of the preventive part of the SGP, thereby are in line 
with the overall thrust of the amendments tabled by Parliament. Other changes envisaged by 
Parliament, namely those concerning the statistical field, have been considered by the Council 
in the finalisation of the legal acts more directly linked to public finance statistics. 

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3. 

CONCLUSIONS AND GENERAL REMARKS 

The Commission considers that the Common Position of the Council includes all the essential 
elements of its original proposal and reflects an overall balanced compromise. It can accept all 
the  changes  made  by  the  Council  to  its  proposal.  It  deems  that  the  inclusion  of  some 
amendments  tabled  by  the  European  Parliament,  in  particular  on  the  monitoring  of  the 
evolution  of  public  debt,  would  have  strengthened  the  proposed  Regulation  further.  The 
proposed  Regulation  will  contribute  to  the  effective  implementation  of  multilateral 
surveillance and economic policy coordination in the EU, especially in relation to budgetary 
policies.  

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