Negotiators from the European Parliament and European Union member states approved the ‘two pack’ regulations after months of talks. The commission will not be allowed to scrutinise countries’ draft budgets more closely and demand changes to their fiscal plans if their deficits are too high. There will be particularly close intervention and supervision of the finances of countries that have either received bailout funds or are seen at risk of needing them.
The rules were originally proposed by the European Commission in November 2011, but last July MEPs backed the regulations on the proviso they were geared more towards growth. Among the changes agreed today are for member states to be able to alter the pace of their deficit reduction plans in ‘exceptional circumstances’ or in the event of a severe economic downturn.
The European Parliament also won concessions, giving it closer scrutiny of the commission’s use of the powers. They will now be subject to review every three years and can be revoked by both the European Parliament and the European Council.
Elisa Ferreira, the Portuguese MEP from the Progressive Alliance of Socialists and Democrats grouping who is responsible for steering the legislation through the Parliament, said: ‘Austerity is not delivering the desired results so it cannot be the only component of our response to the crisis.
‘We need to adapt the medicine. We need to rebalance our short-term objectives to better address growth and the vicious spiral of high debt-financing interest rates. Countries now making superhuman sacrifices need to know that their efforts are recognised and will be rewarded. This is why we have pushed hard to adapt the commission's original proposals.’
Today’s agreement, which has yet to be ratified, also includes a commitment to establish an ‘expert group’ to explore the potential for a redemption fund, aimed at reducing the borrowing costs of heavily indebted countries. This would involve eurozone countries pooling any debt above 60% of their gross domestic product and then jointly issuing bonds,known as ‘eurobills’, to pay it down over a specific period.
Michael Noonan, the Irish finance minister who helped to broker the agreements under his country’s presidency of the EU, said: ‘I very much welcome this morning’s agreement on the “two pack”. This is a key piece of the eurozone’s economic architecture and has been an Irish presidency priority.
The agreement reached today will have to be approved by member states’ ambassadors, as well as by the European Council and European Parliament before becoming law. A Parliament vote is expected in the second week of March, with the rules coming into force shortly after.
