Support for taskforce reforms

EU endorse recommendations for reform drafted by taskforce.

European Union leaders endorsed recommendations for reform drafted since the spring by a taskforce on economic governance headed by Herman Van Rompuy, the president of the European Council. The reforms are supposed to bolster economic governance and so reinforce the stability of the euro in the wake of this year’s debt crisis.

Tougher stability and growth pact:

Sanctions will be strengthened and introduced earlier against member states that break or are close to breaking fiscal rules. Punitive measures will apply not just to those countries that fail to keep their deficits below 3% of gross domestic product (GDP) but also to member states that fail to keep their public debt below 60% of GDP.

The debt rule has previously not been enforced, being deemed less important than the level of deficit. Apart from fines, other possible sanctions include requiring interest-bearing deposits from member states as a first penalty, if they are deemed to be running an excessive budget deficit.

Member states would be requested to give a deposit totalling 0.2% of GDP to the Commission or another, as yet undefined, body until the situation is corrected. If the budget deficit is not brought under control, the deposit would be converted into a fine. Interest made on the deposits would be shared among eurozone nations. Member states have not yet agreed on additional sanctions, such as whether to cut certain aid programmes.

Increased economic surveillance and monitoring:

National budgets will be examined by the Commission each spring, and an early warning mechanism is being set up to detect systemic risks such as real estate bubbles or unsustainable spending patterns. Member states will have to adhere to closer economic policy co-ordination, drafting national reform programmes that will be shared with and reviewed by their EU counterparts. The member states will also have to improve the implementation of fiscal recommendations from the EU.

Permanent crisis management and bail-out plan:

National governments have agreed in principle to put in place an emergency loan mechanism to support the eurozone before the current, temporary, arrangement (agreed in May) ends in June 2013. A permanent mechanism is supposed to ensure the stability of the euro and offer reassurance to markets that EU member states facing debt problems will be supported.

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The leaders charged their finance ministers and the European Commission with pushing through implementing measures, with the aim of getting legislation agreed with the European Parliament by summer 2011.