19 April 2016

ECA: Further improvements needed to ensure effective implementation of the excessive deficit procedure

The ECA has published a special report on effective implementation of the excessive deficit procedure. The excessive deficit procedure is a key element of economic governance in the EU. It is used where necessary to correct the trajectory of deficit and debt in the Member States.

I. The Treaty on the Functioning of the EU establishes it as a basic rule of budgetary policy that Member States must avoid excessive government deficits. Accordingly, where the reference values for deficit and debt are exceeded a corrective mechanism may be initiated against the Member State concerned. This mechanism, the excessive deficit procedure, is a key element of the EU’s economic governance framework.

II. The EC’s role in implementing the excessive deficit procedure is to check the quality of the data notified by each Member State, to assess whether the reference thresholds have been breached, or risk being breached, and on this basis to address opinions and recommendations to the Council to act accordingly. The Council then decides, according to the Treaty provisions, whether or not to adopt the Commission recommendations.

III. Member States placed under an excessive deficit procedure are given recommendations to remedy the situation, including a deadline by which to correct the situation, a path for correction and an annual fiscal effort to be delivered. The EC monitors the Member State’s implementation of corrective measures and reports its findings to the Council. The Council, on the basis of Commission proposals, takes further action as appropriate (lifting the procedure, extending the deadline, setting new targets or imposing sanctions).

IV. The Court examined the EC’s implementation of the excessive deficit procedure between 2008 and 2015, focusing on six Member States. The ECA considered the EC’s quality assessment of Member States’ excessive deficit procedure (EDP) data, the quality of its own forecast data and models and whether its assessments were in tune with the Council’s decisions to launch a procedure. Lastly, the ECA examined how the EC monitored the corrective action taken by Member States under an excessive deficit procedure.

V. The ECA found that, although detailed procedures and guidelines exist for most areas of the EC’s data collection and analysis and its assessment of compliance with the rules on budgetary discipline, there are problems with its implementation of these tasks. This is because the EC did not make full use of its powers to enforce the provision of comprehensive data and compliance with recommendations for corrective action, and because of the failure at times to give adequate feedback on Member States’ reports, the insufficient resources devoted to analysing and reporting on key data, and poor record-keeping.

VI. A related issue is that of transparency, where, despite improvements in recent years, too much information is still generally unavailable regarding the EC’s data assumptions and parameters and its understanding of key concepts. In addition, even where the EC has set clear internal rules it may decide to depart from the established procedure, which raises questions about the overall reliability of its assessments.

VII. In the area of monitoring structural reforms, an aspect of corrective action which the EC recently highlighted as crucial to overcoming an excessive deficit situation, there are signs that the EC does not go far enough, as it essentially focuses on legislative aspects rather than the actual implementation of reforms. The excessive deficit procedure continues to over-emphasise the criterion of deficit rather than debt.

VIII. In conclusion, the ECA finds very positive signs in the EC’s efforts over the years to adapt and rationalise the excessive deficit procedure in response to developments in the EU. The legislative basis is sound and is generally supported by clear internal rules and guidelines. What has been lacking is consistency and transparency in the application of those rules; the EC does not adequately record its underlying assumptions or share its surveillance findings for the greater benefit of all Member States. In recent statements, the EC has acknowledged these shortcomings and indicated that it is prepared to make the necessary improvements. 

Full report

© ECA PRESS