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The "two pack" is the latest piece of the EU's economic governance revamp. It joins other instruments such as the European Semester, the "six pack" and the Fiscal Compact in ensuring that the EU's economic and monetary union is less fragmented and that its component countries run fiscally sound policies.
What is the "two pack" about?
The two regulations build on what has already been agreed in the "Six Pack" legislative measures. They strengthen the legal basis of the "European Semester" economic coordination process and enable the European Commission to get a clearer view of how Eurozone countries are working to meet the fiscal targets set by the EU Stability and Growth Pact. They also lay down much clearer procedures for dealing with countries that are in severe difficulties or are receiving an EU bailout.
The first regulation will apply to all eurozone countries. Countries will need to present their draft budgets to the Commission at the same time each year (by 15 October) and the Commission will have the right to assess and, if necessary, issue an opinion on them. The Commission may also ask that these drafts be revised. The draft regulation also proposes closer monitoring and reporting requirements for Eurozone countries in the Excessive Deficit Procedure. This will strengthen the "European Semester" process by providing clearer rules for acting on the reform recommendations made to each country in the spring.
The second regulation sets out explicit rules and procedures for enhanced surveillance of any Eurozone country in distress. It will be apply in three cases, to:
This regulation will provide a much more predictable way to deal with countries in severe difficulty, improve transparency, and establish mechanisms to ensure that austerity measures accompanying financial assistance do not kill off potential for recovery.
How does the "two pack" fit into the EU's economic governance system?
The EU's economic governance structure is now composed of three basic elements:
Why the delay in approving the legislation?
The "two pack" regulations took 15 months to finalise, i.e. above the 9-10 month average for economic governance and financial services legislation over the past 3 years. This delay was primarily due to a shift in the political climate from the date the rules were first proposed to when they were ultimately adopted. This change saw the left of centre become increasingly critical of the 'austerity only' approach to deal with the eurozone crisis. .
In the European Parliament, this change led to a centre-left/liberals rift with centre-right proponents of austerity. The main bone of contention was over whether the "two pack" should be restricted to rules for preventing excessive deficits and enforcing reforms in "programme countries" or whether it should also include mechanisms for solidarity among countries and public investment leading to their economic convergence. The configuration of coalitions provided no clear majority either way and much work was needed to achieve a compromise acceptable to all.
In negotiations, some Member States then proved particularly reluctant to include any reference to setting up a "debt redemption fund" and the Commission was not prepared to present a proposal for one by the end of 2013. Other issues to do with using the "two pack" to promote growth and investment were also contested by Member States. In mid-December talks were suspended, particularly at the request of Socialist, Liberal and Green MEPs.
In mid-February, the Commission promised to set up a group of wise men to draw up recommendations for establishing a debt redemption fund and introducing eurobills (debt of maturities of less than a year). It also made other commitments, inter alia to allocate financial resources to help countries carry out their structural reforms. These commitments allowed negotiations to resume and a deal was struck some days later.
When will the "two pack" rules enter into force?
The two regulations will enter into force quite quickly, as they will apply directly, and hence do not need to be transposed into national laws. They are therefore likely to apply to the eurozone countries' national budgets of 2014 (i.e. first draft budgets submitted to Commission by 15 October 2013).