Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on enforcement measures to correct excessive macroeconomic imbalances in the euro area
Date: 2010-09-29
Institutions: European Commission
Subjects: Economic and Monetary Union, European accounting system, budget deficit, budget policy, budgetary control, financial regulation, macroeconomics, planned economy, public debt

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EUROPEAN COMMISSION 

Brussels, 29.9.2010 
COM(2010) 525 final 

2010/0279 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on enforcement measures to correct excessive macroeconomic imbalances in the euro 
area 

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EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

The  emergence  of  large  macroeconomic  imbalances,  including  wide  and  persistent 
divergences in competitiveness trends, proved highly damaging to the European Union, and in 
particular to the euro, when the crisis struck. In the years preceding the crisis, low financing 
costs fuelled misallocation of resources, often to less productive uses, feeding unsustainable 
levels  of  consumption,  housing  bubbles  and  accumulation  of  external  and  internal  debt  in 
some  Member  States.  It  is  therefore  important  to  develop  a  new  structured  procedure  for 
prevention and correction of adverse macroeconomic imbalances in every Member State. 

In  its  Communication  and  report  on  ‘EMU@10:  successes  and  challenges  after  10 years  of 
Economic  and  Monetary  Union’1  the  Commission  proposed  a  broad  policy  agenda  with  the 
aim of improving the functioning of the EMU. It stressed, in particular, the need to broaden 
economic surveillance in order to detect and address macroeconomic imbalances at an early 
stage.  Enhanced  surveillance  was  seen  as  particularly  warranted  in  the  areas  of  external 
competitiveness  and  current  account  balances,  where  noticeable  divergences  between 
Member States had emerged since the launch of the euro. In order to address these challenges, 
in  July  2008  the  Euro  Group  agreed  to  initiate  a  regular  review  of  developments  in 
competitiveness within the euro area that has been fruitful. 

Europe 2020 sets out an ambitious and comprehensive strategy towards smart sustainable and 
inclusive growth for the EU economy. Against the background of the crisis it sets a new focus 
on  addressing  Europe's  weaknesses  in  the  surveillance  of  macro-financial  and  structural 
challenges. Taking account of the deep economic and financial inter-linkages within the euro 
area  and  their  impact  on  the  single  currency,  Europe  2020  calls  for  the  development  of  a 
specific policy framework for the euro area to tackle broader macroeconomic imbalances2. A 
mechanism  embedded  in  legislation  monitoring  sources  of  macroeconomic  imbalances  and 
ensuring appropriate corrective action when necessary is required from that perspective. The 
necessary  linkage  between  preventive  and  corrective  action  is  crucial  to  avoid  painful 
economic adjustment when imbalances grow out of control. 

2. 

RESULTS OF CONSULTATIONS WITH INTERESTED PARTIES 

Against  the  background  of  a  crisis  on  an  unprecedented  scale  and  beyond  the  urgent  action 
that  was  taken  to  deal  with  the  immediate  needs,  the  Commission  reacted  quickly  with  an 
ambitious yet realistic agenda of reforms. This took the form of two communications to the 
European Parliament and the Council, issued on 12 May and 30 June 2010 respectively. By 
choosing public legal documents as a channel of communication, the Commission was eager 
to demonstrate its commitment to dialogue with Member States, the European Parliament and 
all other stakeholders, while at the same time delivering practical proposals for action. 

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European Economy No 2/2008, European Commission, DG Economic and Financial Affairs. 
The  Commission  made  the  case  for  deeper  and  broader  economic  coordination  in  the  euro  area 
repeatedly  in  the  past,  including  in  the  2009  Annual  Statement  on  the  Euro  Area  and  the  2008 
Communication  on  "EMU@10:  successes  and  challenges  after  10  years  of  Economic  and  Monetary 
Union". 

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In  its  Communication  of  12  May  2010,  the  Commission  set  out  a  multi-pillar  approach  to 
reinforcing  economic  policy  coordination.  The  communication  stressed  the  case  for  making 
full use of the surveillance instruments available under the Treaty. Where necessary, existing 
instruments should be amended and supplemented. The communication called for reinforcing 
compliance  with  the  Stability  and  Growth  Pact  and  extending  economic  surveillance.  To 
achieve this, establishment of a ‘European semester’ for economic policy coordination would 
allow  Member  States  to  benefit  from  early  coordination  at  European  level.  Finally,  the 
communication  set  out  the  principles  that  should  underpin  a  robust  framework  for  crisis 
management for euro-area Member States. Overall, most of the proposals applied to the EU as 
a whole, but euro-area issues would be approached by means of more demanding rules. 

In  the  meantime,  tensions  on  financial  markets  heightened  and  on  9 May  2010,  based  on  a 
proposal from the Commission, an extraordinary Ecofin Council decided on establishment of 
a  European  stabilisation  mechanism  and  agreed  on  a  strong  commitment  to  faster  fiscal 
consolidation where warranted. 

On 30 June 2010, the European Commission adopted an updated communication specifying 
in  greater  detail  the  principles  for  economic  surveillance  set  out  in  the  communication  of 
12 May. It focused on implementation and enforcement issues. It stressed that the EU needed 
stronger macro-economic country surveillance, integrating all relevant economic policy areas. 
Macroeconomic  imbalances  should  be  looked  at  jointly  with  fiscal  policy  and  growth-
enhancing  reforms  in  the  framework  of  Europe  2020.  Enhanced  surveillance  was  to  be 
anchored  in  the  concept  of  a  ‘European  semester’  and  to  be  accompanied  by  an  array  of 
sanctions to prevent or correct excesses that could jeopardise the financial stability of the EU 
and  the  euro  area.  On  the  fiscal  side,  both  the  preventive  and  the  corrective  parts  of  the 
Stability  and  Growth  Pact  should  be  reinforced.  A  broad  outline  to  address  the 
macroeconomic imbalances between Member States was also presented. 

The  Commission  contributed,  in  the  form  of  the  above-mentioned  communications,  to  the 
work  of  the  Task  Force  on  economic  governance  chaired  by  the  President  of  the  European 
Council and established by the March European Council. The Task Force acknowledged that 
imbalances were a particular problem, especially for members of the euro area. The need for 
more thorough monitoring of macroeconomic developments by a small set of key indicators 
was  recognised,  in  particular  via  a  warning  mechanism.  Overall,  it  was  agreed  that 
macroeconomic  surveillance  should  function  alongside  the  budget  surveillance  under  the 
Stability and Growth Pact. 

The European Council followed closely the work of the Task Force. First orientations were 
contained  in  the  conclusions  of  the  17  June  European  Council,  which  agreed  on  the 
development  of  a  scoreboard  for  early  detection  of  unsustainable  or  dangerous  trends.  The 
conclusions of the European Council of 16 September 2010 welcomed the development of a 
new  macro-surveillance  framework  to  monitor  and  correct  unsustainable  competitiveness 
divergences and imbalances in timely manner. 

3. 

LEGAL ELEMENTS OF THE PROPOSAL 

The fully fledged mechanism for the prevention and correction of macroeconomic imbalances 
is  made  up  of  two  draft  proposals  for  regulations.  This  first  proposal  sketches  out  the 
excessive imbalance procedure (EIP), while the second focuses on the associated enforcement 
measures. Both are described in succession in this explanatory memorandum. 

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This  first  proposal  sets  out  to  provide  a  framework  for  identifying  and  addressing 
macroeconomic  imbalances,  including  deteriorating  competitiveness  trends.  As  such,  it 
complements  the  macrostructural  country  surveillance  process  provided  for  under  Europe 
2020. 

The  EIP  is  a  completely  new  element  of  the  economic  surveillance  process.  It  comprises  a 
regular assessment of risks of imbalances, including an alert mechanism, coupled with rules 
designed to allow corrective action in case of adverse macroeconomic imbalances extending 
beyond fiscal policy. The EIP applies to every Member State. 

Surveillance  starts  with  an  alert  mechanism  that  aims  to  identify  Member  States  with 
potentially problematic levels of macroeconomic imbalances. The alert mechanism consists of 
a scoreboard (Article 3) backed up by judgmental analysis. The scoreboard is designed to be 
transparent, reasonably simple and underpinned by economic rationale. For that purpose, a set 
of indicators aims to ensure timely identification of imbalances emerging in different parts of 
the  economy.  The  set  of  indicators  should  be  broad  enough  to  cover  any  possible  case  of 
major imbalance and to make sure that it is sufficiently sensitive to detect imbalances early 
on. The scoreboard will be made up of several indicators for each Member State. 

Alert  thresholds  will  be  set  and  announced  for  each  indicator  to  increase  transparency  and 
accountability.  For  some  indicators,  thresholds  will  be  symmetric;  they  will  detect  both 
excessively high levels and excessively low levels of the variable. It is, however, important to 
bear  in  mind  that  indicators  should  not  be  regarded  as  either  policy  targets  or  policy 
instruments. For instance, a current account deficit of 3 % may be considered acceptable in a 
converging country with strong investment needs but not in a more advanced country with a 
rapidly  ageing  population.  The  thresholds  should  therefore  be  seen  as  indicative  values  to 
guide  the  assessment,  but  should  not  be  interpreted  in  a  mechanical  way;  they  should  be 
supplemented by economic judgment and country-specific expertise. 

The Commission will release the indicators composing the scoreboard, their respective values 
and their associated underlying methodologies in a separate document in order to provide full 
transparency  on  the  functioning  of  the  alert  mechanism.  The  composition  of  the  scoreboard 
could evolve over time, in line with changing threats to macroeconomic stability or advances 
in data availability. Possible indicators would most  likely include both external and internal 
ones. Measures of the external position (e.g. current accounts and external debt) and price or 
cost  competitiveness  (e.g.  real  effective  exchange  rates)  would  facilitate  the  detection  of 
external  imbalances.  The  use  of  internal  indicators  (e.g.  private  and  public  sector  debt)  is 
justified  on  the  ground  that  external  imbalances  necessarily  have  internal  counterparts.  The 
monitoring  of  internal  indicators  can  also  be  justified  on  its  own  sake  on  the  ground  that 
internal imbalances can have repercussions on other Member States, particularly via financial 
contagion.  Combined,  these  indicators  would  cover  much  of  the  analytical  needs  for  a 
preliminary assessment of possible imbalances. 

The Commission will release the results of the scoreboard regularly and attach a Commission 
report putting into perspective any potentially conflicting signals from the various indicators 
on it (Article 4). On the basis of all available information, the Commission will compile a list 
of Member States deemed at risk of imbalances. Early discussion of this within the Council 
and the Euro Group will enable the Commission to obtain appropriate feedback from Member 
States  and  ensure  the  transparency  of  the  Commission’s  deliberations.  Following  such 
discussions, for Member States where the alert mechanism indicates possible imbalances or a 
risk thereof, the Commission will provide country-specific in-depth reviews (Article 5). The 

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in-depth  review  will  consist  of  a  detailed  investigation  of  the  underlying  problems  in  the 
Member State identified. The review may be undertaken, where needed, in conjunction with 
surveillance missions to the country concerned. Any early warnings or recommendations from 
the European Systemic Risk Board will be taken into account, along with the policy intentions 
of the Member State under review, as reflected in its Stability and Convergence Programme 
and  National  Reform  Programme.  As  a  result  of  this  in-depth  Commission  analysis,  three 
different outcomes are possible, as provided for in Articles 6 and 7: 

–  If  the  macroeconomic  imbalances  are  considered  unproblematic,  the  Commission  will 

propose that no further steps are taken. 

–  If  the  Commission  considers  that  macroeconomic  imbalances  (or  a  risk  thereof)  exist 
following  the  in-depth  review,  it  will  recommend  to  the  Council  to  adopt  the  necessary 
preventive  recommendations  to  the  Member  State  concerned  in  accordance  with  Article 
121(2)  of  the  Treaty.  Consistent  with  the  Broad  Economic  Policy  Guidelines  and 
depending  on  the  nature  of  the  imbalance,  the  preventive  recommendations  may  address 
challenges across a range of policy areas. 

–  If the in-depth review points to severe imbalances or imbalances that jeopardise the proper 
functioning of the Economic and Monetary Union in a specific Member State, the Council 
may, on a recommendation from the Commission, adopt recommendations in accordance 
with  Article  121(4)  of  the  Treaty  declaring  the  existence  of  an  excessive  imbalance  and 
recommending  the  Member  State  concerned  to  take  corrective  action  within  a  specified 
deadline and to present its policy intentions in a corrective action plan. Member States with 
excessive imbalances within the meaning of the EIP would be subjected to stepped-up peer 
pressure.  These  ‘EIP  recommendations’  should  be  made  public;  they  should  be  more 
detailed and prescriptive than the ‘preventive’ recommendations provided for in Article 6. 
Depending  on  the  nature  of  the  imbalance,  the  policy  prescriptions  could  potentially 
address fiscal, wage, macrostructural and macroprudential policy aspects under the control 
of government authorities. 

Following the opening of an EIP, the Member State concerned will be under an obligation to 
adopt a corrective action plan within a specific timeframe, as provided for in Article 8, to set 
out  a  roadmap  of  implementing  policy  measures.  The  corrective  action  plan  would  confirm 
the determination of the Member State concerned to work towards resolving its imbalances. 
Within  two  months  after  submission  of  a  corrective  action  plan  and  on  the  basis  of  a 
Commission  report,  the  Council  shall  assess  the  corrective  action  plan.  If  considered 
sufficient,  on  the  basis  of  a  Commission  proposal,  the  Council  shall  adopt  an  opinion, 
endorsing it. If the actions taken or envisaged in the corrective action plan or their timetable 
for  implementation  are  considered  insufficient  to  implement  the  recommendations,  the 
Council shall, on the basis of a Commission proposal, invite the Member State to amend its 
corrective  action  plan  within  a  new  deadline.  The  flexibility  embedded  in  the  procedure 
should enable the Council to set the appropriate deadline when issuing EIP recommendations, 
taking  into  account  the  scale  and  urgency  of  imbalances  and  the  capability  of  policies  to 
address the situation. Unlike fiscal policy, not all policy levers are under the direct control of 
national governments when it comes to resolving imbalances. Furthermore, corrective policies 
may have a delayed impact on imbalances, depending on their nature. For instance, during the 
ten  years  preceding  the  crisis  in  2008,  the  euro  area  experienced  a  steady  divergence  in  the 
competitive  position  and  the  current  account  balances  of  its  Member  States.  Correction  of 
competitiveness  and  external  imbalances  requires  significant  changes  in  relative  prices  and 
costs and reallocation of demand and supply between the non-tradable sector and the export 

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sector. The economy of many euro-area Member States is shaped by a relatively high level of 
labour and product market rigidities which – in the absence of appropriate reforms – is likely 
to  lengthen  the  period  of  adjustment.  In  all  cases,  the  Commission  will  monitor 
implementation  of  corrective  action  by  the  Member  States  concerned,  who  have  to  submit 
regular progress reports, as provided for in Article 9. If economic circumstances change, the 
EIP recommendations may be amended on the basis of a Commission recommendation. 

On the basis of a Commission recommendation, the Council will conclude whether or not the 
Member State concerned has taken the recommended corrective action. Article 10 sets out the 
conditions  for  this  assessment.  If  the  Council  decides  that  the  Member  State  concerned  has 
taken appropriate action, the procedure will be placed in abeyance. Abeyance means that the 
Member  State  is  making  satisfactory  progress  with  corrective  action.  However,  due  to  the 
possibly long lags between adoption of corrective action and its effect on the ground, effective 
resolution of macroeconomic imbalances might take some time. The Member State concerned 
will be subject to periodic reporting and surveillance until the EIP is effectively closed. 

Eventually,  sustained  and  successful  corrective  action  will  help  to  resolve  imbalances.  As 
provided for in Article 11, the excessive imbalance procedure will be closed once the Council 
concludes, on the basis of a recommendation by the Commission, that the Member State is no 
longer experiencing excessive imbalances. 

If the Member State concerned has not taken appropriate action, it will remain subject to the 
excessive  imbalance  procedure. The Council would have to  adopt  revised recommendations 
with  a  new  deadline  –  likely  to  be  shorter  –  for  taking  corrective  action.  For  euro-area 
Member States the enforcement mechanism could ultimately lead to the sanctions described 
in the regulation on enforcement measures to correct excessive macroeconomic imbalances in 
the euro area. Furthermore,  insufficient  compliance  with  the recommendations  based  on  the 
surveillance of imbalances could also be considered an aggravating factor in the assessment of 
the  fiscal  situation  under  the  Stability  and  Growth  Pact,  creating  self-reinforcing  synergies 
between various policy strands at enforcement level. 

The second proposal for a regulation addresses enforcement of measures to correct excessive 
macroeconomic imbalances. It accompanies this EIP regulation, focusing on enforcement for 
euro-area Member States. It specifies that if a Member State repeatedly fails to act on Council 
recommendations  to  address  excessive  macroeconomic  imbalances,  it  will  have  to  pay  a 
yearly  fine,  until  the  Council  establishes  that  corrective  action  has  been  taken.  Repeated 
failure is defined as  failure to  address  Council  recommendations by the new deadline set in 
accordance with Article 10(4) of Regulation (…). Moreover, the Member State will also have 
to pay a yearly fine if it repeatedly fails to provide the Council and the Commission with a 
corrective action plan that is sufficient to address the recommendations of the Council. In this 
case, repeated failure is defined as failure to provide a sufficient corrective action plan by the 
new deadline set in accordance with Article 8(2) of Regulation (…). The yearly fine will give 
euro-area Member States the necessary incentive to address the recommendations or to draw 
up a sufficient corrective action plan even after the first fine has been paid. 

To ensure equal treatment between Member States, the fine should, be identical for all euro-
area  Member  States  and  equal  to  0.1%  of  the  GDP  of  the  Member  State  concerned  in  the 
preceding  year.  As  a  rule,  the  Commission  will  propose  the  maximum  amount  of  the  fine 
provided for and this proposal will be considered adopted, unless the Council decides to the 
contrary by qualified majority within ten days of the Commission adopting its proposal. The 

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Council  may  amend  the  Commission  proposal  by  acting  unanimously,  in  accordance  with 
Article 293(1) of the Treaty. 

The Council may decide, on the basis of a Commission proposal, to cancel or to reduce the 
fine. The Commission could make a proposal to this end following assessment of a reasoned 
request by the Member State and this would reverse the burden of proof for application of the 
sanction.  Furthermore,  the  Commission  could  also  make  a  proposal  to  the  same  end  on  the 
basis  of  exceptional  economic  circumstances,  as  defined  in  the  Stability  and  Growth  Pact 
(SGP) (Regulation (EC) No 1467/97). 

Council  decisions  concerning  such  fines  will  be  made  only  by  the  members  representing 
Member  States  whose  currency  is  the  euro.  The  vote  of  the  member  of  the  Council 
representing the Member State concerned by the decisions will not be taken into account. 

The fines provided for in this proposal for a regulation constitute other revenue, as referred to 
in Article 311 of the Treaty. In line with the practice established in the corrective part of the 
SGP (Regulation 'EC) No 1467/97), this revenue will be distributed between Member States 
whose currency is the euro and which are not involved in an excessive imbalance procedure 
within  the  meaning  of  Regulation  (…),  and  not  involved  in  an  excessive  deficit  procedure 
within the meaning of Regulation (EC) No 1467/1997, in proportion to their share of the total 
GNI of the eligible Member States. 

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2010/0279 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on enforcement measures to correct excessive macroeconomic imbalances in the euro area 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 136, in 
combination with Article 121(6) thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 

Having regard to the opinion of the European Economic and Social Committee3, 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

The coordination of the economic policies of the Member States within the Union, as provided 
for by the Treaty, should entail compliance with the guiding principles of stable prices, sound 
public finances and monetary conditions and a sustainable balance of payments. 

There  is  a  need  to  build  upon  the  experience  gained  during  the  first  decade  of  functioning  of 
economic and monetary union. 

In particular, surveillance of the economic policies of the Member States should be broadened 
beyond  budgetary  surveillance  to  prevent  excessive  macroeconomic  imbalances  and  help  the 
Member  States  affected  devise  corrective  plans  before  divergences  become  entrenched.  This 
broadening should go in step with deepening of fiscal surveillance. 

(4) 

To help address such imbalances, a procedure laid down in legislation is necessary. 

(5) 

(6) 

It is appropriate to supplement the multilateral surveillance referred to in Article 121(3) and (4) 
of  the  Treaty  with  specific  rules  for  detection,  prevention  and  correction  of  macroeconomic 
imbalances. The procedure should be embedded in the annual multilateral surveillance cycle. 

Enforcement of Regulation (EU) No […/…]4 should be strengthened by establishing fines for 
Member  States  whose  currency  is  the  euro  in  case  of  repetitive  non-compliance  with  the 
recommendations to address excessive macroeconomic imbalances. 

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(7)  Macroeconomic  imbalances  are  likely  to  generate  undue  fluctuations  in  public  revenues  and 
spending  throughout  the  economic  cycle,  affecting  headline  figures  and  distorting  the  picture 
for fiscal planning and decision-making. Inappropriate fiscal policy choices based on distorted 
trends  could  weaken,  and  possibly  compromise,  the  sustainability  of  public  finances.  If 
unchecked,  fiscal  and  other  macroeconomic  imbalances  have  the  potential  to  reinforce  each 
other and possibly to jeopardise the proper functioning  of  economic  and  monetary  union.  For 
these  reasons  a  system  of  correction  of  macroeconomic  imbalances  should  contribute  to  the 
budgetary discipline of the Member States whose currency is the euro.  

(8) 

failure 

to  comply  with  Council 

Repeated 
to  address  excessive 
macroeconomic  imbalances  should,  as  a  rule,  be  subject  to  a  yearly  fine,  until  the  Council 
establishes 
its 
recommendations. 

the  Member  State  has 

taken  corrective  action 

to  comply  with 

recommendations 

that 

(9)  Moreover, repeated failure of the Member State to draw up a corrective action plan to address 
the  Council  recommendations  should  be  equally  subject  to  a  yearly  fine  as  a  rule,  until  the 
Council establishes that the Member State has provided a corrective action plan that sufficiently 
addresses its recommendations. 

(10)  To ensure equal treatment between Member States, the fine should be identical for all Member 
States whose currency is the euro and equal to 0.1% of the gross domestic product (GDP) of the 
Member State concerned in the preceding year. 

(11)  The procedure for the application of the fines on the Member States which fail to take effective 
measures  to  correct  macroeconomic  imbalances  should  be  construed  in  such  a  way  that  the 
application of the fine on those Member States would be the rule and not the exception. 

(12)  The  collected  fines  should  be  distributed  between  Member  States  whose  currency  is  the  euro 
which are neither the subject of an excessive imbalance procedure nor have an excessive deficit.  

(13)  The  power  to  adopt  individual  decisions  for  the  application  of  the  fine  provided  for  in  this 
Regulation  should  be  conferred  on  the  Council.  As  part  of  the  coordination  of  the  economic 
policies of the Member States conducted within the Council as specified in Article 121(1) of the 
Treaty,  these  individual  decisions  are  an  integral  follow-up  to  the  measures  adopted  by  the 
Council in accordance with Article 121 of the Treaty and Regulation (EU) No […/…]. 

(14)  Since this Regulation contains general rules for  effective enforcement of Regulation (EU) No 
[…/…], it should be adopted in accordance with the ordinary legislative procedure referred to in 
Article 121(6) of the Treaty. 

(15)  Since  an  effective  framework  for  detection  and  prevention  of  macroeconomic  imbalances 
cannot be sufficiently achieved by the Member States because of the deep trade and financial 
inter-linkages between Member States and the spillover effects of national economic policies on 
the Union and the euro area as a whole and can be better achieved at Union level, the Union 
may adopt measures in accordance with the principle of subsidiarity, as set out in Article 5 of 
the Treaty on European Union. In accordance with the principle of proportionality, as set out in 

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the  same  Article,  this  Regulation  does  not  go  beyond  what  is  necessary  to  achieve  those 
objectives. 

HAVE ADOPTED THIS REGULATION: 

Article 1 
Subject matter and scope 

1. This Regulation sets out a system of fines for effective correction of macroeconomic imbalances in 
the euro area. 

2. This Regulation shall apply to Member States whose currency is the euro.  

Article 2 
Definitions 

For the purposes of this Regulation, the definitions set out in Article 2 of Regulation (EU) No […/…] 
shall apply.  

In addition, the following definition shall apply: 

–  ‘exceptional  economic  circumstances’  means  circumstances  where  an  excess  of  a  government 
deficit over the reference value is considered exceptional within the meaning of the second indent of 
Article 126(2)(a) of the Treaty and as specified in Council Regulation (EC) No 1467/975. 

Article 3 
Fines 

1. A yearly fine shall be imposed by the Council, acting on a proposal by the Commission, if: 

(1) 

(2) 

two  successive  deadlines  have  been  set  in  accordance  with  Articles  7(2)  and  10(4)  of 
Regulation  (EU)  No  […/…],  and  the  Council  thereafter  concludes  in  accordance  with  Article 
10(4) of that Regulation that the Member State concerned has still not taken the recommended 
corrective action, or if 

two successive deadlines have been set in accordance with Articles 8(1) and 8(2) of Regulation 
(EU) No […/…], and the Council thereafter concludes in accordance with Article 8(2) of that 
Regulation  that  the  Member  State  concerned  has  again  submitted  an  insufficient  corrective 
action plan. 

The decision shall be deemed adopted by the Council unless it decides, by qualified majority, to reject 
the  proposal  within  ten  days  the  Commission  adopting  it.  The  Council  may  amend  the  proposal  in 
accordance with Article 293(1) of the Treaty.  

2. The yearly fine to be proposed by the Commission shall be 0.1% of the GDP of the Member State 
concerned in the preceding year.  

5 

OJ L 209, 2.8.1997, p. 6. 

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3.  By  derogation  from  paragraph  2,  the  Commission  may,  on  grounds  of  exceptional  economic 
circumstances  or  following  a  reasoned  request  by  the  Member  State  concerned  addressed  to  the 
Commission within ten days of adoption of the Council conclusions referred to in paragraph 1, propose 
to reduce the amount of the fine or to cancel it.  

4.  If  a  Member  State  has  paid  a  yearly  fine  for  a  given  calendar  year  and  the  Council  thereafter 
concludes, in accordance with Article 10(1) of Regulation (EU) No […/…] that the Member State has 
taken  the  recommended  corrective  action  in  the  course  of  the  given  year,  the  fine  paid  for  the  given 
year shall be returned to the Member State pro rata temporis.  

Article 4 
Distribution of the fines 

Fines  collected  in  accordance  with  Article  3  of  this  Regulation  shall  constitute  other  revenue,  as 
referred to in Article 311 of the Treaty, and shall be distributed, in proportion to their share in the total 
gross national income (GNI) of the eligible Member States, between Member States whose currency is 
the  euro  and  which  are  not  the  subject  of  an  excessive  imbalance  procedure  within  the  meaning  of 
Regulation  (EU)  No  […/…]  and  do  not  have  an  excessive  deficit  as  determined  in  accordance  with 
Article 126(6) of the Treaty. 

Article 5 
Voting within the Council  

For  the  measures  referred  to  in  Article  3,  only  members  of  the  Council  representing  Member  States 
whose currency is the euro shall vote and the Council shall act without taking into account the vote of 
the member of the Council representing the Member State concerned.  

A  qualified  majority  of  the  members  of  the  Council  mentioned  in  the  previous  paragraph  shall  be 
defined in accordance with Article 238(3)(a) of the Treaty. 

Article 6 
Entry into force 

This  Regulation  shall  enter  into  force  on  the  twentieth  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

This  Regulation  shall  be  binding  in  its  entirety  and  directly  applicable  in  the  Member  States  in 
accordance with the Treaties.  

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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