The European Budgetary Pact: What does the French Ratification Bill Propose?

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On September 19, the French Council of Ministers examined the European Budgetary Pact Ratification Bill, which the French Parliament will discuss  around October 2. Against the backdrop of the Euro crisis, the European Budgetary Pact (formally known as the Treaty on Stability, Coordination and Governance or TSCG) has sparked a lively political debate, as it would reinforce budget austerity with the introduction of a balanced budget rule. This is the opportunity for European septics to raise their voices as each State ratifying the TSCG will be bound by clauses that would traditionally be decided under the sovereign power of the State. What are the Budgetary Pact core points and the modifications proposed by the French ratification bill?

The Pact was called upon by the German Chancellor Angela Merkel and Mario Draghi, President of the European Central Bank (ECB), who said it would incite greater monetary union stability. The Pact is centered on inter-governmental action. Its aim is to fight the deficit and indebtedness of Europe, and “foster budgetary discipline through a fiscal compact,” according to Article 1 of the TSCG.

The Pact’s “balanced budget rule,” would require a state budget to be balanced or in surplus. If a member state were not to comply with the rule limitations would be imposed.

But, this can be relaxed if the situation is not alarming, in other words, if “the ratio of the general government debt to gross domestic product … is significantly below 60 % and where risks in terms of long-term sustainability of public finances are low,” according to the pact language.

Some deviation from the line is still allowed in the case of exceptional circumstances, defined as “unusual event outside the control of the Contracting Party concerned which has a major impact on the financial position of the general government” or “ periods of severe economic downturn.” However, if the public debt  exceed 60% of the GDP then the government will have to reduce its debt regularly (at an average rate of 1/20 every year).

For example, if a member state is subject to an excessive deficit procedure the Pact would require submission of a budgetary and economic partnership program to the Council of the European Union and to the European Commission for endorsement.

In this case, the Member States commit themselves to support  the proposal or recommendations of the European Commission, provided a qualified majority is not met.

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The Commission would control the implementation of the Pact by the European States and if they are breaching their duty it can apply to the Court of Justice of the European Union (CJEU) which can take its own actions. Another member state can also bring an action independently but this remains unlikely for diplomatic reasons.

The pact also creates Euro Summit meetings which should take place at least twice a year to give the opportunity to the head of states and government to discuss the questions related to the Euro area governance.

The French bill would create an independent institution, the High Council of Public Finances, which would  give an opinion on economic growth previsions and check the validity of public finances planning laws. This authority would inform the French Parliament and the government if corrective actions would need to be taken. Its eight members will have a mandate of 5 years, non-renewable and non-revocable. The Council would be headed by the President of the Cour des Comptes, a group of government auditors

Some critics disapprove of the Pact, arguing that it would threaten French sovereignty, though the French Constitutional Council ruled otherwise saying that the TSCG would not threaten national sovereignty more than earlier commitments of the France to respect European fiscal rules. “The commitment to comply with these new rules, will not affect the essential conditions of the exercise of national sovereignty more than the previous commitment related to fiscal discipline,”said the Council.

The Budgetary Pact was signed on the 2nd of March 2012 by 25 member state of the European Union. It will be adopted on the January 1, 2013.

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