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It also lays down clear rules for countries seeking EU financial help.
"This crisis has shown us that half-hearted actions will not stop a fire. With such rules in place three years ago we would have avoided the problems currently experienced by some countries and which have threatened the whole eurozone since it would have been possible to take early, clear and quick actions", said rapporteur for the rules dealing with countries in significant financial trouble, Jean-Paul Gauzès (EPP, FR).
Elisa Ferreira (S&D, PT), rapporteur on the text which steps up budgetary reporting requirements for all Eurozone countries, argued that this legislation needed to address a broader political context than one focused on fiscal discipline. "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", she said.
Growth, not just fiscal consolidation
Parliament's amendments ensure that the new laws would do more to deliver growth. The Commission's country-by-country budget assessments will therefore need to be more comprehensive, to ensure that budget cuts are not made at the cost of killing off investments with growth potential. Where countries are asked to make substantial cuts, their efforts must not harm investments in education and healthcare, particularly in countries in severe financial difficulty.
Member States would be required to detail which of their investments have growth and jobs potential, and their deficit reduction timetables would have to be applied more flexibly in exceptional circumstances or in severe economic downturns. The Commission would be required to look at spillover effects, to be sure that a country's difficulties do not also stem for bad policy elsewhere in the eurozone.
The texts also entrench the rights of social partners and civil society to express their views on Commission recommendations and be better included in policy formulation.
Better oversight of Commission powers
The Commission's exercise of its increased powers would be monitored more closely by Member States and the European Parliament, so as to ensure better oversight, accountability and legitimacy. To this end, for example, the Commission's powers to impose reporting requirements would have to be renewed every three years and Parliament or the Council would be able to revoke them.
The text dealing with countries in severe economic difficulty would now be based on the "Community method", meaning that the EU institutions would be properly involved. This would also apply to financial assistance, e.g. from the European Stability Mechanism (ESM), which until now has been kept strictly in the inter-governmental realm.
The work of the so-called "Troika" (Commission, ECB and IMF), tasked with overseeing economic reforms in these countries, will also be subject to more oversight, thereby increasing transparency and democratic accountability.
Redemption fund, eurobills and infrastructure investment
The last piece of the agreement to fall into place concerned Parliament's insistence on the need to address the matter of a European redemption fund. The agreed compromise requires the Commission to "establish an Expert Group to deepen the analysis on the possible merits, risks, requirements and obstacles of partial substitution of national issuance of debt through joint issuance in the form of a redemption fund and eurobills". The group of outside experts will present its conclusions by March 2014 and the Commission will then be asked to assess and, if appropriate, table proposals before the end of its mandate.
Parliament's Left and Liberal factions had long pushed for movement on a redemption fund, arguing that solidarity must play a bigger role in the EU's economic governance system and that Member States must take responsibility for the consequences of their reluctance to move on the issue.
The Commission also undertook to explore by the summer ways to allow the Stability and Growth Pact the room needed to accommodate certain non-recurrent public investments. By year end it would also develop a system to provide financial support for countries to undertake competitiveness-boosting reforms. Finally it pledges to follow up its action plan on tax fraud/avoidance and employment and social policy measures.
Next steps
The deal must now be approved by Parliament as a whole. A vote is expected to take place in the second week of March and the rules will enter into force shortly thereafter.
Background
The legislative proposals presented late in 2011 in the form of two texts build on the economic governance "six pack" legislation (hence the name "two pack"). They focus on strengthening Commission surveillance of national budgetary and economic policy and further economic policy coordination.
The texts lay down detailed procedures for persuading Member States to amend their national budgets in line with Commission recommendations. The one dealing with countries in particularly serious financial difficulties or in receipt of financial assistance lays down even more stringent rules, thus embedding clear procedures for these cases in EU law.
Commission background on two-pack, 23.11.11
In a separate statement, VP Rehn said:
"Today, a breakthrough has been reached that will allow a further significant strengthening of economic governance in the euro area. I sincerely thank the European Parliament and the Irish Presidency for their constructive cooperation, which has allowed for the successful resolution of the last outstanding issues, as well as the Danish and Cypriot Presidencies for all of their hard work over the course of 2012.
The agreement on the Two-Pack in this morning’s trilogue should pave the way for a completion of the legislative process in the next few weeks so that these two key Regulations can swiftly enter into force. This will mean that the euro area can benefit from a more integrated and effective policy-setting framework already for the 2014 budgetary cycle. The rebuilding and reinforcement of our economic and monetary union is underway.
The adoption of the Two-Pack is the essential foundation for the next steps in that process. The Commission intends to come forward in the coming months with further ambitious proposals to that end, as set out in the Blueprint for a Deep and Genuine EMU adopted last November."