Opinion of the European Central Bank of 16 February 2011 on economic governance reform in the European Union (CON/2011/13)

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COUNCIL OFBrussels, 25 February 2011 THE EUROPEAN UNION Interinstitutional File: 5570/11 2010/0276(CNS) 2010/0277(NLE) 2010/0278(COD) 2010/0279(COD) 2010/0280(COD) 2010/0281(COD) ECOFIN 25 UEM 12 SOC 165 CODEC 296 COVER NOTE from:

Mr Jean-ClaudeTRICHET, President of the European Central Bank date of receipt: 22 February 2011 to: Mr Pierre de BOISSIEU, Secretary-General of the Council of the European Union Subject: Opinion of the European Central Bank of 16 February 2011 on economic governance reform in the European Union (CON/2011/13) Delegations will find attached the Opinion of the European Central Bank of 16 February 2011 (CON/2011/13). ________________________

Encl.: CON/2011/13

OPINION OF THE EUROPEAN CENTRAL BANK

of 16 February 2011 on economic governance reform in the European Union (CON/2011/13) Introduction and legal basis

On 29 November 2010 the European Central Bank (ECB) received a request from the Council for an opinion on the following proposals (hereinafter the `Commission proposals'):

(1) proposal for a Council Regulation amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (hereinafter the `draft EDP')[[note: 1]]

(2) proposal for a Council Directive on requirements for budgetary frameworks of the Member States (hereinafter the `draft budgetary frameworks Directive')[[note: 2]]

(3) proposal for a Regulation of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area (hereinafter the `draft budgetary enforcement procedure')[[note: 3]]

(4) proposal for a Regulation of the European Parliament and of the Council on enforcement measures to correct excessive macroeconomic imbalances in the euro area (hereinafter the `draft excessive imbalances procedure')[[note: 4]]

(5) proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the

surveillance and coordination of economic policies (hereinafter the `draft budgetary surveillance procedure')

[[note: 5]]

(6) proposal for a Regulation of the European Parliament and of the Council on the prevention and correction of macroeconomic imbalances (hereinafter the `draft macroeconomic surveillance procedure')[[note: 6]]

The ECB's competence to deliver an opinion regarding the draft EDP is based on the second subparagraph of Article 126(14) of the Treaty on the Functioning of the European Union since enforcement of the excessive deficit procedure is relevant to the primary objective of the European System of Central Banks (ESCB) of maintaining price stability in Articles 127(1) and 282(2) of the Treaty and Article 2 of the Statute of the European System of Central Banks (hereinafter the `Statute of the ESCB'). The ECB's competence to deliver an opinion regarding the draft budgetary frameworks Directive, the draft budgetary enforcement procedure, the draft excessive imbalances procedure, the draft budgetary surveillance procedure and the draft macroeconomic surveillance procedure is based on the first indent of Article 127(4) and Article 282(5) of the Treaty and the first indent of Article 4(a) of the Statute, since they are also relevant to the abovementioned primary objective of the ESCB.

In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion, with observations by the General Council. General observations

1.

The current crisis has demonstrated very clearly that ambitious reform to the economic governance framework is in the profound and overwhelming interest of the European Union, the Member States and, in particular, the euro area.
2.

The ECB's note of 10 June 2010 `Reinforcing economic governance in the euro area' proposed strengthening the governance and the enforcement structures in euro area economic and budgetary policies. It also proposed selectively extending such strengthening to all EU Member States.
3.

The ECB notes that the Report of the Task Force to the European Council on strengthening economic governance in the EU of 21 October 2010 (hereinafter the `Task Force Report') made a series of additional recommendations to the Commission proposals. The ECB participated in this Task Force, although it did not subscribe to all elements of the Task Force Report.
4.

The Commission proposals represent an important broadening and strengthening of the EU economic and budgetary surveillance framework and go some way in improving enforcement in the euro area. However, they fall short of the necessary quantum leap in the surveillance of the euro area which the ECB deems necessary to ensure its stability and smooth functioning. Similarly, as stated on 4 November 2010 during the introductory statement to the press conference following the ECB's Governing Council meeting, the Task Force Report represents, for the European Union a strengthening of the existing framework for budgetary and macroeconomic surveillance. However, the Governing Council considers that the Task Force Report does not go either as far as the necessary quantum leap for the euro area that it has been calling for.
5.

This Opinion draws on the abovementioned ECB note `Reinforcing econonomic governance in the

in order to make a series of suggestions to the Commission proposals addressing the elements which the ECB considers necessary in order to progress towards a quantum leap in the economic governance of the euro area. None of these suggestions implies the need for Treaty change.

6.

In this vein, the ECB notes that, upon their adoption, the Commission proposals will become a fundamental instrument to oblige the EU and Member States to conduct sound economic and budgetary policies. In the case of the euro area, further strengthening commensurate with the enhanced degree of integration among euro area Member States is all the more justified. The current crisis has amply shown that unsound economic and budgetary policies in some euro area Member States and any resulting financial instability may also directly translate into difficulties for other euro area Member States. Thus, the ECB calls on the EU legislator and the Member States to take advantage of the ongoing legislative process to strengthen the economic governance package to the maximum allowed under the current Treaties. In addition, the EU should consider at a certain point in time Treaty reform to further strengthen economic governance.
7.

For the ECB, insufficient automaticity is a fundamental flaw of the Commission proposals. The ECB aknowledges that the Commission proposals represent a relative increase of automaticity if compared with the current situation, notably by means of the Commission presenting proposals to the Council rather than recommendations, and by means of the introduction of reverse qualified majority voting in the Council. The ECB is also aware that the Council exercises discretion under Articles 121 and 126 of the Treaty dealing, respectively, with the surveillance of economic and budgetary policies and with the excessive deficit procedure. In this vein, the ECB proposes that the EU legislator consider reverting the changes to the Stability and Growth Pact introduced in 2005[[note: 7]]

which increased the leeway allowed to Member States in respect of their obligations under the Pact.

8.

In any event, and, in addition to the increases in automaticity indicated above, the Council has the possibility of issuing a formal declaration stating that, as a rule, the Council, in all the procedures addressed in the Commission proposals, will vote in favour of continuing the procedure if so proposed or recommended by the Commission in its relevant proposal or recommendation and that, should the rule not be followed, the Council will substantiate the reasons for departing from the rule. Thus, the non-continuation of the procedure will be the exception, which, in turn, the Council will need to substantiate. While declarations are not binding, such a commitment would guide the

Council's exercise of its discretion under the different procedures and hence contribute to their strengthening. Such a declaration would become part of the economic governance framework in the EU.

7 Council Regulation (EC) No 1055/2005 of 27 June 2005 amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (OJ L 174, 7.7.2005, p. 1) and Council Regulation (EC) No 1056/2005 of 27 June 2005 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 174, 7.7.2005, p. 5).

9.

The ECB considers that such a declaration would be an indispensable element in the smooth functioning of the EU's economic governance. Should the Council not support such a declaration, the ECB recommends as an alternative a declaration by the Eurogroup engaging the 17 euro area Member States to vote in favour of the continuation of the procedures as a rule, with the need to substantiate any departures.
10.

Furthermore, there are several elements showing insufficient automaticity in the Commission proposals which should be reconsidered:

(a) the draft budgetary surveillance procedure provides the possibility for Member States to depart from the adjustment path towards the medium term budgetary objective in case of a severe economic downturn of a general nature. Given the paramount importance of fiscal sustainability, the ECB would advise against such escape clauses. Should they be maintained, the ECB recommends expressly to subject the activation of these clauses to the non endangering of fiscal sustainability;

(b) the draft budgetary enforcement procedure provides that the Council will review interest- bearing deposits, non-interest bearing deposits and fines it imposes, on the grounds of exceptional economic circumstances or following a reasoned request by the Member State concerned. These revision possibilities should be deleted since they appear only to contribute to lengthening the procedure and additional work for the Commission without any particular justification, given that the Commission and the Council will already have considered the circumstances at stake and the arguments of the Member State concerned prior to the Council's imposition of the financial measures;

(c) more generally, the economic governance framework should not impose on the Commission obligations which would limit its capacity to recommend or propose the continuation of the procedures. In particular, the Commission's obligation to take into account discussions within the Council as a condition for the continuation by the Commission of any procedure should be excluded.

11.

In addition, the ECB recommends increasing automaticity by means of adding reverse Council qualified majority voting whenever possible, such as in the case of Council opinions on the stability and convergence programmes established on the basis of Article 121(3) of the Treaty and by means of including procedural steps which advance the procedure by increasing the pressure on non-compliant Member States. In this latter sense, Article 121(4) of the Treaty allows for an increase in the automaticity of the draft budgetary surveillance procedure. Furthermore, the implementation of Article 126(8) of the Treaty could create an excessive deficit procedure step under which a Member State has to prove that effective action has been taken to prevent the application of sanctions.
12.

Additional political and reputational measures should be established in the draft surveillance

the European Council. In addition, the Commission, in liaison with the ECB if it deems it appropriate, where euro area Member States or ERM II participant Member States are concerned, should conduct missions to Member States not complying with Council recommendations.

13.

The ECB is also concerned that consideration of relevant factors is too lenient when assessing compliance with the reference value for the government debt ratio. While all relevant factors should be considered when the Commission prepares a report on the existence of an excessive debt ratio and while particular consideration should be given to the effect of guarantees issued by the Member States under the European Financial Stability Facility or eventually under the future European Stability Mechanism, all these factors should only be considered where the government debt ratio is declining over a three year horizon according to the Commission's forecasts. Any relevant mitigating factors should never lead to an assessment that a Member State has no excessive debt ratio where its debt ratio exceeds the reference value and is projected to be on an increasing path.
14.

The introduction of more leeway when assessing deficits in the excessive deficit procedure, notably by taking the whole range of relevant factors into account when the debt ratio is below 60% of gross domestic product (GDP) reference value, conflicts with a strengthening in the rules. Irrespective of whether the debt ratio is above or below 60% of GDP reference value, the relevant factors should only be taken into consideration when assessing whether the deficit is excessive where the deficit ratio, before taking into acount such factors, is close to 3% of GDP reference value and the excess over the reference value is temporary, in line with the current rules. Finally, the numerical benchmark to assess the change in the debt ratio should be applied without delay from the entry into force of the Regulation.
15.

Under the draft budgetary surveillance procedure, the ECB recommends: (a) sufficient progress towards the medium term objective should be evaluated on the basis of an overall assessment with the structural balance as a reference, including an analysis of expenditure net of discretionary revenue measures; (b) the growth rate of government expenditure should normally not exceed a

projected reference medium-term growth rate of potential gross domestic product (GDP) growth;

common methodology used by the Commission; (d) taking into account the impact of the structure of economic growth on revenue growth. The Code of Conduct will need to establish operational definitions of these elements

[[note: 8]]

16.

The ECB strongly welcomes the introduction of a macroeconomic surveillance procedure, which closes an important lacuna in the economic governance framework. This new procedure should concentrate firmly on euro area Member States experiencing sustained losses of competitiveness and large current account deficits. Spillover effects in the euro area and the specific requirements

for ensuring its smooth functioning should also be taken into account. Given the possible changing nature of crisis over time, the list of indicators to be used in connection with the procedure may evolve without, however, losing the focus of the procedure which should be the prevention of situations creating risks for economic, budgetary and financial stability in the euro area and in the EU.

17.

The scope of the procedure should by defining the term 'imbalances' address an open list of situations to be prevented by the procedure. In addition, the inclusion of the term `vulnerabilities'

in this procedure, defined as situations of possible Member State difficulty that sound macroeconomic surveillance of the economic and monetary union would reasonably cover, would reinforce the preventive nature of the procedure. It should also be clarified that the recommendations under this procedure should be consistent with the other procedures established under Articles 121, 126 and 136 of the Treaty and that the procedure takes due account of the commitments under the ERM II agreements. As to the references to the European Systemic Risk Board (ESRB) in the macroeconomic surveillance procedure, while its independence will not be affected if this procedure takes into account its warnings and recommendations, the ECB recommends introducing a reference to the need to respect the ESRB's confidentiality regime.

18.

In addition, the macroeconomic surveillance procedure should be determined by transparent and effective trigger mechanisms. The assessments of macroeconomic imbalances and the recommendations for corrective action should be given broad publicity at all stages of the procedure. Increased automaticity and graduated financial sanctions should also be introduced under the draft excessive imbalances procedure, notably following the first instance of non- compliance by a Member State with the Council recommendation following which the Council should already impose an interest-bearing deposit without the need for repeated non-compliance. The latter should be sanctioned by a fine.
19.

As to the interest accruals from the non-remunerated deposits and the fines imposed on euro area Member States under the Commission proposals, they should be assigned to the European Stability Mechanism (ESM) to be created in 2013, with an appropriate transition solution until its creation.
20.

The procedures addressed in the Commission proposals should be implemented and enforced in a coherent manner. This would be facilitated by striving to the largest possible extent for simplicity, transparency and predictability when adopting and applying the resulting regulations. The scope for diverging interpretations or disputes over measurement issues should be limited and bureaucratic processes avoided.
21.

The ECB suggests that the Commission missions under the budgetary and macroeconmic surveillance procedures and the excessive debt procedure liaise with the ECB if it deems it appropriate, for missions to Member States whose currency is the euro and for Member States participating in ERM II. The ECB's participation in the missions to Greece and Ireland has proven useful. The ECB understands this participation as its contribution to economic policies, and will

conduct this contribution without any prejudice to its independence in the performance of its tasks established in the Treaty.

22.

The ECB sees also the need to establish an advisory body of persons of recognised competence in economic and fiscal matters to prepare an independent annual report addressed to the Union institutions on compliance by the Council and the Commission, including Eurostat, with their obligations under Articles 121 and 126 of the Treaty and under the procedures addressed in the Commission proposals. If its capacity allows, and without prejudice to its main tasks of preparing the above report, this body should also provide analysis on specific economic or budgetary issues following a request by the European Council, the Council or the Commission. This body's tasks should not infringe on the Commission's competence. The members of this body should be fully independent. The EU legislator will need to establish the administrative standing and features of this body, including its material and human resources. This body should be established under the draft budgetary surveillance procedure and references to it should be made in the other Commission proposals.
23.

Regarding the draft budgetary frameworks Directive, while the ECB agrees with the choice of a directive as a legal instrument, it considers that the purpose and the nature of the Directive would call for national transposition as close as possible to the Directive's wording. This is particularly true for the euro area Member States. In this vein, the ECB would welcome a political statement by the Eurogroup to achieve such a uniform national transposition, which could be reflected in the recitals.
24.

The ECB also considers that all Member States should in any case be required to ensure independent monitoring, analysis and validation of the key elements of their budgetary frameworks. For the euro area Member States a specific chapter should be introduced, in which desirable elements in the Council Conclusions of 17 May 2010 and the Task Force Report are made mandatory for the euro area Member States by means of the Directive, with the possibility for non euro area Member States to voluntarily implement them into their legal orders, which the ECB strongly recommends. Among the desired elements, the creation of independent fiscal councils should appear as a priority in the Directive, and the Directive should also give due consideration to introducing a top-down approach, meaning a prior agreement on the total spending level that is then allocated in spending allotments for different ministries or government agencies.
25.

All these measures should not prevent Member States from developing stronger budgetary frameworks, such as by including rules prohibiting general government structural deficits above a certain threshold of GDP. At the same time, the EU legislator should consider introducing in the Directive or other legislation an obligation for Member States to adopt legislation with clear borrowing frameworks with precise definitions and limits, as this would contribute to legal certainty.
26.

In addition, the ECB recommends highlighting the importance of transparent national forecasts and methodologies for their preparation. At the same time, the Commission's forecasts have to play a central role in benchmarking national forecasts.
27.

Furthermore, regarding its effectiveness, the Directive should refer expressly to costs imposed on national authorities for non-compliance with numerical fiscal rules, including both non-financial measures and financial sanctions at national level. Obligations to redeem in the medium-term debt exceeding amounts tolerated by the fiscal framework should be included. Specific circumstances in which temporary non-compliance is allowed would need to be defined strictly, if at all needed. Furthermore, the ECB considers that the envisaged entry into force of the ESM in 2013 should lead to a transposition deadline of 31 December 2012 instead of 31 December 2013.
28.

Regarding statistics as part of the Directive, the ECB favours an increase in the timeliness and reliability of the annual and quarterly government accounts reported to the Commission under Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

[[note: 9]]

. The Directive may contribute to simultaneous enhancement of the timeliness and reliability of general government accounts by supporting the implementation of public accounting systems on an accrual basis that are interconnected with ESA 95 based national accounts. The accounting systems should be based on internationally accepted public sector accounting standards to ensure the harmonised recognition and measurement of government transactions.

29.

Regarding statistics in future legislation, the ECB notes that, as per the Task Force Report, EU legislative action is required for the `European statistics code of practice' to become legally binding, while, in the meantime, the complete implementation of the code is accelerated, in particular regarding quality and the mandates for data collection. Moreover, Eurostat powers in assessing and monitoring the EDP notifications should be further strengthened with a focus on proactive measures to enhance the quality of government statistics.
30.

Finally, the ECB warns that the Commission proposals, and in particular the reforms concerning the euro area, will imply increased work demands both at EU and national levels, which calls for consequent allocation of human and material resources. Drafting proposals Where the ECB recommends amendments to the Commission proposals, specific drafting proposals are set out in the Annex accompanied by explanatory text to this effect. Upon adoption, the citations of the proposed regulations and directive will need to reflect the submission of this opinion.

Done at Frankfurt am Main, 16 February 2011. The President of the ECB Jean-Claude TRICHET

Annex Drafting proposals regarding the proposal for a Council Regulation amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (COM(2010) 522) Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 1 New recitals `(7) The establishment of the existence of an `(7) The establishment of the existence of an excessive deficit based on the debt criterion and the excessive deficit based on the debt criterion and the steps leading to it should not be based solely on steps leading to it should not be based solelyon non-compliance with the numerical benchmark, but non-compliance with the numerical benchmark, but always take into account the whole range of always and take into account the whole range of relevant factors covered by the Commission report relevant factors covered by the Commission report under Article 126(3) of the Treaty. under Article 126(3) of the Treaty only where the government debt ratio is declining over a three year horizon according to the Commission's forecasts.

(8) In the establishment of the existence of an (8) In the establishment of the existence of an excessive deficit based on the deficit criterion and excessive deficit based on the deficit criterion and the steps leading to it there is a need to take into the steps leading to it there is a need to take into account the whole range of relevant factors covered account the whole range of relevant factors covered by the report under Article 126(3) of the Treaty if by the report under Article 126(3) of the Treaty if the government debt to gross domestic product the government debt to gross domestic product does not exceed the reference value. does not exceed the reference value. only if the deficit ratio is close to the reference value and the excess over the reference value is temporary.

(9) The Commission report under Article 126(3) of (9) The Commission report under Article 126(3) of the Treaty should appropriately consider the quality the Treaty should appropriately consider the quality of the national fiscal framework, as it plays a of the national fiscal framework, as it plays a crucial role in supporting fiscal consolidation and crucial role in supporting fiscal consolidation and sustainable public finances. sustainable public finances.

(10) In order to support the monitoring of (10) (9) In order to support the monitoring of compliance with Council recommendations and compliance with Council recommendations and notices for the correction of the situations of notices for the correction of the situations of excessive deficit, there is a need that these specify excessive deficit, there is a need that these specify annual budgetary targets consistent with the annual budgetary targets consistent with for the required fiscal improvement in cyclically adjusted required fiscal improvement in cyclically adjusted terms, net of one-off and temporary measures. terms, net of one-off and temporary measures could be supplemented by further specifications consistent with these structural targets.

(11) The assessment of effective action will benefit

(9) (10) The assessment of effective action should from taking compliance with general government be based on the required improvements to the expenditure targets as a reference in conjunction structural balance and could be complemented with the implementation of planned specific will benefit from by taking compliance with revenue measures. general government expenditure targets as a reference in conjunction with the implementation of planned specific revenue measures.

(12) In assessing the case for an extension of the (12) In assessing the case for an extension of the deadline for correcting the excessive deficit, special deadline for correcting the excessive deficit, special consideration should be given to severe economic consideration should be given to severe economic downturns of a general nature.' downturns of a general nature.' Explanation The recitals should already clarify that leeway increases in the reinforced Stability and Growth Pact are to be rejected. The amendments introduced are explained in detail in this opinion's general observations and below. Amendment 1a Article 1(2)(b) of the proposed regulation (Article 2(1a) (new) of Regulation (EC) No 1467/97) `1a. When it exceeds the reference value, the `1a. When it exceeds the reference value, the ratio of the government debt to gross domestic ratio of the government debt to gross domestic product (GDP) is to be considered sufficiently product (GDP) is to be considered sufficiently diminishing and approaching the reference value at diminishing and approaching the reference value at a satisfactory pace in accordance with Article 126 a satisfactory pace in accordance with Article 126 (2) (b) of the Treaty if the differential with respect (2) (b) of the Treaty if the differential with respect to the reference value has reduced over the to the reference value has reduced over the

twentieth per year. For a period of 3 years from twentieth per year. For a period of 3 years from [date of entering into force of this Regulation - to [date of entering into force of this Regulation - to be inserted], account shall be taken of the be inserted], account shall be taken of the backward-looking nature of this indicator in its backward-looking nature of this indicator in its application.' application.' Explanation The ECB is in favour of the application of the numerical benchmark to assess the change in the debt ratio withouth delay from the date of entry into force of the Regulation. Amendment 2 Article 1(2)(c) of the proposed regulation (Article 2(3) and (4a) (new) of Regulation (EC) No 1467/97) `3. The Commission, when preparing a report `3. The Commission, when preparing a report under Article 126(3) of the Treaty shall take into under Article 126(3) of the Treaty shall take into account all relevant factors as indicated in that account all relevant factors as indicated in that Article. The report shall appropriately reflect Article. The report shall appropriately reflect developments in the medium-term economic developments in the medium-term economic position (in particular potential growth, prevailing position (in particular potential growth, prevailing cyclical conditions, inflation, excessive cyclical conditions, inflation, excessive macroeconomic imbalances) and developments in macroeconomic imbalances) and developments in the medium-term budgetary position (in particular, the medium-term budgetary position (in particular, fiscal consolidation efforts in `good times', public fiscal consolidation efforts in `good times', public investment, the implementation of policies in the investment, the implementation of policies in the context of the common growth strategy for the context of the common growth strategy for the Union and the overall quality of public finances, in Union and the overall quality of public finances, in particular, compliance with Council Directive [...] particular, compliance with Council Directive [...]

on requirements for budgetary frameworks of the on requirements for budgetary frameworks of the Member States). The report shall also analyse Member States). The report shall also analyse developments in the medium-term debt position as developments in the medium-term debt position as relevant (in particular, it appropriately reflects risk relevant (in particular, it appropriately reflects risk factors including the maturity structure and factors including the maturity structure and currency denomination of the debt, stock-flow currency denomination of the debt, stock-flow operations, accumulated reserves and other operations, accumulated reserves and other government assets; guarantees, notably linked to government assets; guarantees, notably linked to the financial sector; liabilities both explicit and the financial sector; liabilities both explicit and implicit related to ageing and private debt to the implicit related to ageing and private debt to the

liability for the government). Furthermore, the liability for the government). Furthermore, the Commission shall give due consideration to any Commission shall give due consideration to any other factors which, in the opinion of the Member other factors which, in the opinion of the Member State concerned, are relevant in order to State concerned, are relevant in order to comprehensively assess in qualitative terms the comprehensively assess in qualitative terms the excess over the reference value and which the excess over the reference value and which the Member State has put forward to the Commission Member State has put forward to the Commission and to the Council. In that context, special and to the Council. In that context, special consideration shall

be given

to financial consideration shall

be given

to financial contributions to fostering international solidarity contributions to fostering international solidarity and to achieving Union policy goals, including and to achieving Union policy goals, including financial stability.' financial stability. When preparing a report, the Commission may request additional information from the Member State concerned. [...]

4a. When assessing compliance on the basis of the debt criterion, these relevant factors shall be taken into account in the steps leading to the decision on the existence of an excessive deficit provided for in paragraphs 4, 5 and 6 of Article 126 of the Treaty, only where the government debt ratio is declining over a three year horizon according to the Commission's forecast.

4.

The Commission and the Council shall make a 4. The Commission and the Council shall make a balanced overall assessment of all the relevant balanced overall assessment of all the relevant factors, specifically, the extent to which they affect factors, specifically, the extent to which they affect the assessment of compliance with the deficit the assessment of compliance with the deficit and/or the debt criteria as aggravating or mitigating and/or the debt criteria as aggravating or mitigating factors. factors. When assessing compliance on the basis of the When assessing compliance on the basis of the deficit criterion, if the ratio of the government debt deficit criterion, if the ratio of the government debt to GDP exceeds the reference value, these factors to GDP exceeds the reference value, these factors shall be taken into account in the steps leading to shall be taken into account in the steps leading to the decision on the existence of an excessive deficit the decision on the existence of an excessive deficit provided for in paragraphs 4, 5 and 6 of Article 126 provided for in paragraphs 4, 5 and 6 of Article 126 of the Treaty only if the double condition of the of the Treaty only if the double condition of the

overarching principle -- that, before these relevant overarching principle -- that, before these relevant factors are taken into account, the general factors are taken into account, the general government deficit remains close to the reference government deficit remains close to the reference value and its excess over the reference value is value and its excess over the reference value is temporary -- is fully met.' temporary -- is fully met.' Explanation The Commission's report in Article 2(3) referring to Article 126(3) of the Treaty appears to take into account, inter alia, `excessive macroeconomic imbalances' which are the subject of a different proposal (COM(2010) 525). The ECB is in favour of a logical and reasonable coexistence of the different procedures. The reference to `excessive macroeconomic imbalances' may lead to confusion, giving the impression that COM(2010) 522 and COM(2010) 525 are essentially regulating the same subject matter. The additional reporting requirement is intended to be an incentive for compliance by the Member State, given that the Commission must prepare a report on the existence of an excessive deficit or excessive debt ratio. Compliance with the reference values would avoid the need for additional reporting. While all relevant factors will be considered when the Commission prepares a report on the existence of an excessive debt ratio, they shall only be considered where the government debt ratio is declining. Any mitigating relevant factors should never lead to an assessment that a Member State has no excessive debt ratio where its debt ratio exceeds the reference value and is on an increasing path. Finally, the `close and temporary' principle with regard to the deficit criterion should be respected regardless of the debt ratio. Amendment 3 Article 1(3)(d) of the proposed regulation (Article 3(4a) of Regulation (EC) No 1467/97) `4a. Within the deadline of six month at most `4a. Within the deadline of six month at most provided for in paragraph 4, the Member State provided for in paragraph 4, the Member State concerned shall report to the Commission and the concerned shall report to the Commission and the Council on action taken in response to the Council Council on action taken in response to the Council recommendation under Article 126(7) of the recommendation under Article 126(7) of the Treaty. The report shall include the targets for the Treaty. The report shall include the targets for the government expenditure and for the discretionary government expenditure and for the discretionary measures on the revenue side consistent with the measures on the revenue side consistent with the Council recommendation under Article 126(7) of Council recommendation under Article 126(7) of the Treaty, as well as information on the measures the Treaty, as well as information on the measures taken and the nature of those envisaged to achieve taken and the nature of those envisaged to achieve

the targets. The report shall be made public.' Commission may request additional reporting from the Member State.

5.

If effective action has been taken in compliance 5. If effective action has been taken in compliance with a recommendation under Article 126(7) of the with a recommendation under Article 126(7) of the Treaty and unexpected adverse economic events Treaty and unexpected adverse economic events with major unfavourable consequences for with major unfavourable consequences for government finances occur after the adoption of government finances occur after the adoption of that recommendation, the Council may decide, on a that recommendation, the Council may decide, on a recommendation from the Commission, to adopt a recommendation from the Commission, to adopt a revised recommendation under Article 126(7) of revised recommendation under Article 126(7) of the Treaty. The revised recommendation, taking the Treaty. The revised recommendation, taking into account the relevant factors mentioned in into account the relevant factors mentioned in Article 2(3) of this Regulation, may notably extend Article 2(3) of this Regulation, may notably extend the deadline for the correction of the excessive the deadline for the correction of the excessive deficit by one year as a rule. The Council shall deficit by one yearas a rule. The Council shall assess the existence of unexpected adverse assess the existence of unexpected adverse economic events with major unfavourable economic events with major unfavourable consequences for government finances against the consequences for government finances against the economic forecasts in its recommendation. The economic forecasts in its recommendation. The Council may also decide, on a recommendation Council may also decide, on a recommendation from the Commission, to adopt a revised from the Commission, to adopt a revised recommendation under Article 126(7) of the Treaty recommendation under Article 126(7) of the Treaty in case of a severe economic downturn of a general in case of a severe economic downturn of a general nature.' nature.' Explanation Additional reporting is a tool of the Commision to incentivise Member States' compliance. A need to expressly foresee the adoption of a revised recommendation under Article 126(7) of the Treaty is not apparent. Amendment 4 Article 4(1) of Regulation (EC) No 1467/97 `(1) Any Council decision to make public its `(1) Any Council decision to make public its recommendations, where it is established that no recommendations, where it is established that no effective action has been taken in accordance with effective action has been taken in accordance with Article 126(8) of the Treaty, shall be taken Article 126(8) of the Treaty, shall be taken

accordance with Article 3(4) of this Regulation.' accordance with Article 3(4) of this Regulation. At the same time, the Council, on a proposal from the Commission, shall immediately submit a (No amendment in the proposed regulation) formal report to the European Council.' Explanation This is an additional element of the procedure which should incentivise compliance by the Member State concerned. Amendment 5 Article 1(5)(b) of the proposed regulation (Article 5(1a) of Regulation (EC) No 1467/97 ) `1a. Following the Council notice given in `1a. Following the Council notice given in accordance with Article 126(9) of the Treaty, the accordance with Article 126(9) of the Treaty, the Member State concerned shall report to the Member State concerned shall report to the Commission and the Council on action taken in Commission and the Council on action taken in response to the Council notice. The report shall response to the Council notice. The report shall include the targets for the government expenditure include the targets for the government expenditure and for the discretionary measures on the revenue and for the discretionary measures on the revenue side as well as information on the actions being side as well as information on the actions being taken in response to the specific Council taken in response to the specific Council recommendations so as to allow the Council to recommendations so as to allow the Council to take, if necessary, the decision in accordance with take, if necessary, the decision in accordance with Article 6 (2) of this Regulation. The report shall be Article 6 (2) of this Regulation. The report shall be made public.' made public. The Commission shall monitor and evaluate adjustment measures taken to address the excessive deficit by means of a mission to the Member State concerned, in liaison with the ECB if it deems it appropriate, for participating Member States and Member States participating in the exchange-rate mechanism (ERM II), and prepare a report to the Council. This report may be made public.

2.

If effective action has been taken in compliance 2. If effective action has been taken in compliance with a notice under Article 126(9) of the Treaty and with a notice under Article 126(9) of the Treaty and unexpected adverse economic events with major unexpected adverse economic events with major unfavourable consequences for government unfavourable consequences for government

finances occur after the adoption of that notice, the finances occur after the adoption of that notice, the Council may decide, on a recommendation from Council may decide, on a recommendation from the Commission, to adopt a revised notice under the Commission, to adopt a revised notice under Article 126(9) of the Treaty. The revised notice, Article 126(9) of the Treaty. The revised notice, taking into account the relevant factors mentioned taking into account the relevant factors mentioned in Article 2(3) of this Regulation, may notably in Article 2(3) of this Regulation, may notably extend the deadline for the correction of the extend the deadline for the correction of the excessive deficit by one year as a rule. The Council excessive deficit by one yearas a rule. The Council shall assess the existence of unexpected adverse shall assess the existence of unexpected adverse economic events with major unfavourable economic events with major unfavourable consequences for government finances against the consequences for government finances against the economic forecasts in its notice. The Council may economic forecasts in its notice.'The Council may also decide, on a recommendation from the also decide, on a recommendation from the Commission, to adopt a revised notice under Commission, to adopt a revised notice under Article 126(9) of the Treaty in case of a severe Article 126(9) of the Treaty in case of a severe economic downturn of a general nature.' economic downturn of a general nature.' Explanation Commission missions to the Member State concerned, in liaison with the ECB if it deems it appropriate, for the euro area and for Member States participating in ERM II, should contribute to the achievement of the objectives of the proposed draft regulation and should be an important deterrent for the non- compliant Member State.

A need to expressly foresee the adoption of a revised notice on the basis of Article 126(9) is not apparent. Amendment 6 Article 1(14) of the proposed regulation (Article 16 of Regulation (EC) No 1467/97)

`Fines referred to in Article 12 of this Regulation `Fines referred to in Article 12 of this Regulation shall constitute other revenue referred to in Article shall revert

to the European Stability 311 of the Treaty and shall be distributed among Mechanism. constitute other revenue referred to in participating Member States which do not have Article 311 of the Treaty and shall be distributed excessive deficit as determined in accordance with among participating Member States which do not Article 126(6) of the Treaty and which are not the have excessive deficit as determined in accordance subject of an excessive imbalance procedure within with Article 126(6) of the Treaty and which are not the meaning of Regulation (EU) No [.../...], in the subject of an excessive imbalance procedure proportion to their share in the total gross national within the meaning of Regulation (EU) No [.../...], income (GNI) of the eligible Member States.' in proportion to their share in the total gross

national income (GNI) of the eligible Member States.' Explanation Fines paid by euro area Member States under the surveillance framework should accrue to the future ESM. The appropriate transitional provisions (European Financial Stability Mechanism and/or European Financial Stability Facility as beneficiaries of the fines) will need to be established until the ESM has been established in accordance with the European Council Conclusions of 16 and 17 December 2010. The reason for these fines to accrue to the ESM is that there is a link between non -compliance by Member States with their obligations under the Commission proposals and the need to establish an ESM. Therefore such fines deriving from the governance package should accrue to the ESM.

As indicated in this opinion, if accepted, this solution should be extended mutatis mutandis to all the procedures strengthened or created by the Commission proposals.

In each of the regulations strengthened or created by the Commisison proposals, a recital should explain the reason for reverting to the ESM of the interest accruals and other financial sanctions along the lines indicated above: there is a link between non-compliance by Member States with their economic governance obligations and the need to establish the ESM.

Drafting proposals regarding the proposal for a Council Directive on requirements for budgetary frameworks of the Member States (COM(2010) 523) Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 1 Recital 7 of the proposed directive `(7) Biased and unrealistic macroeconomic and `(7) Biased and unrealistic macroeconomic and budgetary forecasts may considerably hamper the budgetary forecasts may considerably hamper the effectiveness of fiscal planning and consequently effectiveness of fiscal planning and consequently impair commitment to budgetary discipline, while impair commitment to budgetary discipline, while transparency and validation of forecasting transparency and validation of forecasting methodologies may significantly increase the methodologies may should significantly increase quality of macroeconomic and budgetary forecasts the quality of macroeconomic and budgetary for fiscal planning.' forecasts for fiscal planning.' Explanation Transparency and validation of forecasting methodologies are key tools for the quality of forecasting. Amendment 2 Recital 8 of the proposed directive `(8) A crucial element in ensuring the use of `(8) A crucial element in ensuring the use of realistic forecasts for the conduct of budgetary realistic forecasts for the conduct of budgetary policy is transparency, which must entail public policy is transparency, which must entail availability of the methodologies, assumptions and publication and therefore public availability not parameters on which the official macroeconomic only

of sufficiently detailed official and budgetary forecasts are based.' macroeconomic and budgetary forecasts but also of the methodologies, assumptions and parameters on which the official macroeconomic and budgetary such forecasts are based.'

Text proposed by the Commission Amendments proposed by the ECB

1 Explanation The proposed amendment reinforces the crucial role, transparency and detail. Amendment 3 Recital 12 of the proposed directive `(12) Considering the documented effectiveness of `(12) Considering the documented effectiveness of rules-based budgetary frameworks of the Member rules-based budgetary frameworks of the Member States in promoting budgetary discipline, strong States in promoting budgetary discipline, strong national fiscal rules that are consistent with the national fiscal rules that are consistent with the budgetary objectives at the level of the Union must budgetary objectives at the level of the Union must be a cornerstone of the strengthened budgetary be a cornerstone of the strengthened budgetary surveillance framework of the Union. Strong fiscal surveillance framework of the Union. Strong fiscal rules should be equipped with well-specified target rules should be equipped with well-specified target definitions together with mechanisms for effective definitions together with mechanisms for effective and timely monitoring. In addition, policy and timely monitoring. In addition, policy experience has shown that for numerical rules to experience has shown that for numerical fiscal work effectively, consequences must be attached rules to work effectively, consequences must be to non-compliance, where the costs involved may attached to non-compliance, where the costs be simply reputational.' involved may be simply reputational which should include reputational, political and financial costs. Timely redemption of additional debt incurred shall be a standard consequence.' Explanation The credibility of the fiscal framework is increased if explicit consequences for non-compliance, including both non-financial and financial costs, are identified in the proposed directive and hence in national legislation.An obligation for timely redemption of debt incurred beyond the concessions of the fiscal framework is a powerful instrument to prevent breaches of the rules. Amendment 4 New recital 12a of the proposed directive

No text `(12a) The number of specific circumstances in which temporary non-compliance with

Text proposed by the Commission Amendments proposed by the ECB

1 numerical fiscal rules is permitted should be limited. Strict criteria regarding the budgetary impact of the non-compliance and the resulting responsibility should be fulfilled. Repayment of additional debt has to be assured within an appropriate time period.' Explanation While explicit consequences for non-compliance are considered necessary to ensure effectiveness, any specific circumstances in which temporary non-compliance with numerical fiscal rules is permitted should be restricted to a limited number, thus reinforcing the general application of the consequences for non-compliance. The proposed new recital reinforces the limited character of the exception provided for in Article 6(d) of the proposed directive. Exceptions should fulfil strict criteria and redemption has to be a condition for the exception. Amendment 5 Recital 13 of the proposed directive `(13) Member States should avoid pro-cyclical `(13) Member States should avoid pro-cyclical fiscal policies and fiscal consolidation efforts fiscal policies and fiscal consolidation efforts should be greater in good times. Well-specified should be greater in good times. Well-specified numerical fiscal rules are conducive to these numerical fiscal rules are conducive to these objectives.' objectives. These numerical fiscal rules should incorporate the aim

of strengthening government expenditure control and provide Ministries of Finance with instruments to restrict expenditure to keep deficits under control.' Explanation The purpose of introducing numerical fiscal rules, i.e. to strengthen government expenditure control, should be made clear in the rules themselves and Ministries of Finance should be granted the appropriate instruments.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 6 Recital 18 of the proposed directive `(18) To be effective in promoting budgetary `(18) To be effective in promoting budgetary discipline and the sustainability of public finance, discipline and the sustainability of public finance, budgetary frameworks should comprehensively budgetary frameworks should comprehensively cover public finances. For this reason, operations cover public finances. For this reason, operations of extra-budgetary funds and bodies that have an of extra-budgetary funds and bodies likely to have immediate or medium-term impact on Member an immediate or medium-term impact on Member States' budgetary positions should be given States' budgetary positions should be given particular consideration.' particular consideration reported

a transparent manner. Their expected

potential impact on general government budget balances and debt should be explicitly addressed in the medium-term budgetary frameworks.' Explanation The proposed amendment reinforces effectiveness through the link to the medium-term budgetary framework and ensures increased monitoring of institutions beyond the government sector for which capital injections may become necessary. Amendment 7 New recital (18a) of the proposed directive

No text `(18a) The purpose and the features of the Directive call for a national transposition which is as close as possible to the text of the Directive. While this is true for all the Member States, it is particularly true for Member States whose currency is the euro. [Account is taken of the agreement of the Eurogroup dated .... [that all Member States whose currency is the euro undertake a national transposition along this line]].'

Text proposed by the Commission Amendments proposed by the ECB

1 Explanation

A commitment to a transposition closely following the Directive, particularly in the euro area Member

States, will make the Directive more effective. Amendment 8 New recital (18b) of the proposed directive

No text. `(18b) There is a need for Member States whose currency is the euro to implement into their national budgetary frameworks other features in addition to the features contained in this Directive for all the Member States. A chapter with specific provisions for the Member States whose currency is the euro lays down these two features: one

is the establishment

independent fiscal councils tasked with providing independent monitoring, analysis, assessments and forecasts and the other is the application of top-down budgetary processes. While the former should be mandatory, Member States should give due consideration to the latter. Member States whose currency is not the euro can voluntarily incorporate several or

all of these additional features into their

national budgetary frameworks. They should specifically consider incorporating into the latter the independent fiscal councils.' Explanation The elements which have been considered desirable by the Council in its May 2010 Conclusions on this matter and in the Task Force Report should be made mandatory for the euro area Member States.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 9 Article 1 of the proposed directive `This Directive sets out detailed rules concerning `This Directive sets out detailed rules concerning the characteristics of the budgetary frameworks of the characteristics of the budgetary frameworks of the Member States that are necessary to ensure the the Member States that are necessary to ensure effectiveness of the excessive deficit procedure.' compliance with the effectiveness of the excessive deficit procedure obligation of the Member States to avoid excessive government deficits as referred to in Article 126(1) of the Treaty.' Explanation The proposed directive should not refer explicitly to the excessive deficit procedure but rather to the need to avoid excessive deficits since the Directive, once implemented in the Member States, will become an instrument for strengthening Member States' compliance with their obligations under Articles 121 and 126 of the Treaty. Amendment 10 Article 2(f) of the proposed directive `(f) arrangements for analysis to enhance the `(f) arrangements for independent monitoring, transparency of elements of the budget process, analysis, assessments and validation to enhance including inter alia the mandate of independent the transparency of the budget process, including national budget offices or institutions acting in the inter alia the mandate of independent national field of budgetary policy;' budget offices or institutions acting in the field of budgetary policy;' Explanation The arrangements should not just concern the analysis, but also the monitoring, assessment and validation of the budget processes and they should ensure that these are undertaken in an independent manner.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 11 Article 3(1) of the proposed directive `1. As concerns national systems of public `1. To ensure the timely and accurate reporting accounting, Member States shall have in place of annual and quarterly ESA-based government public accounting systems comprehensively and data as required by the ESA transmission consistently covering all sub-sectors of general programme, As concerns national systems of government as defined by Regulation (EC) No public accounting, Member States shall have in 2223/96 (ESA 95), and containing the information place public accounting systems, applying needed to compile ESA 95-based data. Those internationally accepted public sector public accounting systems shall be subject to accounting standards on an accrual basis that internal control and audit.' comprehensively and consistently cover all sub- sectors of general government as defined by Regulation (EC) No 2223/96 (ESA 95), and containing the information needed to compile ESA 95-based data. Those public accounting systems shall be subject to internal independent control and audit.' Explanation

To increase the timeliness and accuracy of the government data reported to the Commission, it is desirable for Member States to accelerate the implementation of public accounting systems for the government sector entities, which report data on an accrual basis in line with internationally accepted public sector accounting standards. This would allow an easy translation of these data into the ESA 95- based national accounts. The public accounting systems should be subject to independent control and audit. Amendment 12 Article 3(2) of the proposed directive `2. Member States shall ensure timely and regular `2. Member States shall ensure timely and regular public availability of fiscal data for all sub-sectors public availability of fiscal data for all sub-sectors of general government. In particular Member of general government. In particular Member States shall publish States shall publish (a) cash-based fiscal data at a monthly (a) cash-based fiscal data at a monthly

Text proposed by the Commission Amendments proposed by the ECB

1 sector thereof separately identified, before the end sector thereof separately identified, before the end of the following month, of the following month, (b) a detailed reconciliation table showing the (b) a detailed reconciliation table showing the elements of transition between cash based and ESA elements of transition between cash based and ESA 95-based data.' 95-based data.' Explanation The ECB agrees with the need for timely fiscal data and is therefore in favour of bringing forward the reporting deadlines of the quarterly ESA-based government accounts under the new ESA transmission programme. Obliging all Member States to report additional monthly cash data and detailed reconciliation tables would unduly increase the reporting burden, especially because the reconciliation between cash data and ESA 95-based data is not straightforward. As Article 3(2) neither specifies the content of the fiscal data nor the valuation rules, the additional reporting burden is unproportional to the added value for European governance and even risks diverting resources from improving the quality of European statistics on the general government sector. Amendment 13 Article 4(1) of the proposed directive `1. Member States shall ensure that fiscal planning `1. Member States shall ensure that fiscal planning is based on realistic macroeconomic and budgetary is based on realistic macroeconomic and budgetary forecasts using the most up-to-date information. forecasts using the most up-to-date information. Budgetary planning shall be based on the most Budgetary planning shall be based on the most likely macro-fiscal scenario or on a more prudent likely macro-fiscal scenario or on a more prudent scenario that highlights in detail deviations from scenario that highlights in detail deviations from the most likely macro-fiscal scenario. The the most likely macro-fiscal scenario. The macroeconomic and budgetary forecasts shall be macroeconomic and budgetary forecasts shall be prepared taking into account the Commission prepared taking into account compared with the forecasts as appropriate. Differences between the Commission forecasts as appropriate. Differences chosen macro-fiscal scenario and the Commission between the chosen macro-fiscal scenario and the forecast shall be explained.' Commission forecast shall be explained.'

Text proposed by the Commission Amendments proposed by the ECB

1 Explanation The proposed amendment, reduces the element of uncertainty in the obligation to take into account the Commission forecasts. Amendment 14 Article 4(4) of the proposed directive `4. Member States shall have the macroeconomic `4. Member States shall have the macroeconomic and budgetary forecasts for fiscal planning and budgetary forecasts for fiscal planning regularly audited, including ex post evaluation. The regularly audited, including ex post evaluation. The result of this auditing shall be made public.' result of this independent auditing shall be made public.' Explanation Auditing should be conducted on an independent basis. Amendment 15 Article 6 of the proposed directive `Without prejudice to the Treaty provisions of the `Without prejudice to the Treaty provisions of the budgetary surveillance framework of the Union, budgetary surveillance framework of the Union, numerical fiscal rules shall contain specifications numerical fiscal rules shall contain specifications on the following elements: on the following elements:

(a) the target definition and scope of the rules; (a) the target definition and scope of the rules;

(b) effective and timely monitoring of compliance (b) effective and timely monitoring of compliance with the rules, such as by independent national with the rules, such as by independent national budget offices or institutions acting in the field of budget offices or institutions acting in the field of budgetary policy; budgetary policy;

that involve a clear political and financial cost for the authorities responsible for non- compliance among which the imposition of

timely redemption of additional debt incurred;

Text proposed by the Commission Amendments proposed by the ECB

1 specific circumstances in which temporary non-number of specific circumstances in which compliance with the rule is permitted.' temporary non-compliance with the rule is permitted.' Explanation The credibility of the fiscal framework is increased if explicit consequences for non-compliance, including both non-financial and financial costs, are identified in the Directive and hence in the national legislation. Escape clauses should not be a requirement;where they are specified, they should be limited in scope and duration. Redemption of additional debt should be a mandatory tool, in addition to any other consequences. Amendment 16 Article 8(2)(a) of the proposed directive `(a) comprehensive and transparent multi-annual `(a) comprehensive and transparent multi-annual budgetary objectives in terms of the general budgetary objectives in terms of the general government deficit, debt, and any other summary government deficit, debt, expenditure and any fiscal indicator, ensuring that these are consistent other summary fiscal indicator, ensuring that these with any fiscal rules as provided for in Chapter IV are consistent with any fiscal rules as provided for in force,' in Chapter IV in force,' Explanation Since expenditure developments will be assessed under the amended Regulation (EU) No 1466/97, expenditure should be mentioned explicitly as a budgetary objective at the national level. Amendment 17 Article 12(1) of the proposed directive `1. All sub-sectors of general government shall be `1.All sub-sectors of general government shall be covered by numerical fiscal rules.' covered by numerical fiscal rules Numerical fiscal rules shall be designed and implemented in order to ensure that fiscal targets cover all sub- sectors of general government and are in line with Member States' obligations under the Stability and Growth Pact.'

Text proposed by the Commission Amendments proposed by the ECB

1 Explanation The proposed amendment clarifies that the numerical fiscal rules should cover all sub-sectors of general government and should be in line with the Stability and Growth Pact. Amendment 18 New Chapter VIA `Specific provisions for the Member States whose currency is the euro' New Article 13b of the proposed directive

No text `1. In addition to their obligations under this Directive and without prejudice to them, Member States whose currency is the euro shall establish in their budgetary frameworks:

an independent fiscal council whose task is to provide independent monitoring, analysis, assessments and forecasts in all areas of domestic fiscal policy which may have an impact on the compliance by the Member States whose currency is the euro with their obligations deriving from Articles 121 and 126 of the Treaty and from any legislation and measures adopted under any of these Articles or under Article 136 of the Treaty;

and should give due consideration to the application of a top-down approach, meaning a budgeting approach that starts from an agreement on the total spending level that is then allocated in spending allotments for different ministeries or government agencies and thereby supports adherence to spending limits.

2.

In addition to their obligations under this

Directive and without prejudice to them, Member States whose currency is not the euro

Text proposed by the Commission Amendments proposed by the ECB

1 features into their budgetary frameworks, in particular the establishment of independent fiscal councils, on a voluntary basis.' Explanation

In addition to the minimum requirements for national budgetary frameworks, the elements which have been considered desirable in the Council Conclusions of 17 May 2010 and in the Task Force Report should be made mandatory for the euro area Member States, and there should be an explicit reference to the possibility for non euro area Member States to also incorporate such desirable elements. Amendment 19 First subparagraph of Article 14(1) of the proposed directive `1. Member States shall bring into force the `1. Member States shall bring into force the provisions necessary to comply with this Directive provisions necessary to comply with this Directive by 31 December 2013 at the latest. They shall by 31 December 20132 at the latest. They shall forthwith communicate to the Commission the text forthwith communicate to the Commission the text of those provisions and a correlation table between of those provisions and a correlation table between those provisions and this Directive.' those provisions and this Directive.' Explanation

As the national procedures for approval of the ESM should be completed by 1 January 2013, this Directive to be implemented by that date.

Drafting proposals regarding the proposal for a Regulation of the European Parliament and of the Council on the effective enforcement of budgetary surveillance in the euro area (COM(2010) 524) Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 1 Recital 5 `(5) Sanctions for Member States whose currency `(5) Sanctions for Member States whose currency is the euro in the preventive part of the Stability is the euro in the preventive part of the Stability and Growth Pact should provide incentives for and Growth Pact should provide incentives for prudent fiscal policy-making. Such policymaking adhering to the adjustment path towards the should ensure that the growth rate of government medium-term objective. It could include prudent expenditure does not normally exceed a prudent fiscal policy-making. Such policymaking should medium-term growth rate of gross domestic ensure that the growth rate of government product (GDP), unless the excess is matched by expenditure does not normally exceed a prudent increases in government revenues or discretionary medium-term growth rate of potential gross revenue reductions are compensated by reductions domestic product (GDP), unless the excess is in expenditure.' matched by increases in government revenues or discretionary revenue reductions are compensated by reductions in expenditure.' Expanation

A clear reference to the adjustment path towards the medium-term objective is preferable to a reference

to prudent fiscal policy making. Amendment 2 Recital 11 of the proposed regulation `(11) A possibility should be provided for the `(11) A possibility should be provided for the Council to reduce or to cancel the sanctions Council to reduce or to cancel the sanctions imposed on Member States whose currency is the imposed on Member States whose currency is the euro on the basis of a Commission proposal euro on the basis of a Commission proposal

Text proposed by the Commission Amendments proposed by the ECB

1 following a reasoned request by the Member State following a reasoned request by the Member State concerned. In the corrective part of the Stability concerned. In the corrective part of the Stability and Growth Pact, the Commission should also be and Growth Pact, the Commission should also be able to propose to reduce the size of a sanction or able to propose to reduce the size of a sanction or to cancel it on grounds of exceptional economic to cancel it on grounds of exceptional economic circumstances.' circumstances.' Explanation

As indicated in paragraph 10 of this opinion, the ECB recommends deleting these restrictions of automaticity. Amendment 3 Recital 12 of the proposed regulation `(12) The non-interest-bearing deposit should be `(12) The non-interest-bearing deposit should be released upon correction of the excessive deficit released upon correction of the excessive deficit while the interest on such deposits and the fines while the interest on such deposits and the fines collected should be distributed among Member collected should be reverted to the European States whose currency is the euro which do not Stability Mechanism. distributed among Member have an excessive deficit and which are not the States whose currency is the euro which do not subject of an excessive imbalance procedure have an excessive deficit and which are not the either.' subject of an excessive imbalance procedure either.' Explanation See the proposed amendment to Article 7 below. Amendment 4 Article 3(1) and (4) of the proposed regulation `1. If the Council addresses to a Member State a `1. If the Council addresses to a Member State a recommendation in accordance with Article 121(4) recommendation in accordance with Article 121(4)

of the Treaty to take the necessary adjustment of the Treaty to take the necessary adjustment measures in the event of persisting or particularly measures in the event of a persisting or particularly serious and significant deviations from prudent serious and significant observed deviations from

Text proposed by the Commission Amendments proposed by the ECB

1 Regulation (EC) No 1466/97, the lodging of an objective prudent fiscal policy-making as laid interest bearing deposit shall be imposed by the down in Article 6(23) of Regulation (EC) No Council, acting on a proposal from the 1466/97, the lodging of an interest bearing deposit Commission. The decision shall be deemed to be shall be imposed by the Council, acting on a adopted by the Council unless it decides by proposal from the Commission. The decision shall qualified majority to reject the proposal within ten be deemed to be adopted by the Council unless it days of the Commission adopting it. The Council decides by qualified majority to reject the proposal may amend the proposal in accordance with Article within ten days of the Commission adopting it. The 293(1) of the Treaty. Council may amend the proposal in accordance with Article 293(1) of the Treaty. [...] [...]

4.

By derogation from paragraph 2, the 4. By derogation from paragraph 2, the Commission, following a reasoned request by the Commission, following a reasoned request by the Member State concerned addressed to the Member State concerned addressed to the Commission within ten days of adoption of the Commission within ten days of adoption of the Council recommendation referred to on paragraph Council recommendation referred to on paragraph 1, may propose to reduce the amount of the 1, may propose to reduce the amount of the interest-bearing deposit or to cancel it.' interest-bearing deposit or to cancel it.' Explanation The ECB recommends replacing abstract concepts with clearly measurable ones. The ECB recommends deleting the additional steps in the procedure, which review steps already taken after sufficient discussion, as they limit the degree of automaticity. Amendment 5 Article 4(4) of the proposed regulation `4. By derogation from paragraph 2 of this Article, `4. By derogation from paragraph 2 of this Article, the Commission may, on grounds of exceptional the Commission may, on grounds of exceptional economic circumstances or following a reasoned economic circumstances or following a reasoned request by the Member State concerned addressed request by the Member State concerned addressed to the Commission within ten days of adoption of to the Commission within ten days of adoption of the Council decision in accordance with Article the Council decision in accordance with Article 126(6) of the Treaty, propose to reduce the amount 126(6) of the Treaty, propose to reduce the amount of the non-interest-bearing deposit or to cancel it.' of the non-interest-bearing deposit or to cancel it.'

Text proposed by the Commission Amendments proposed by the ECB

1 Explanation The ECB proposes deleting this paragraph as it reduces automaticity. Amendment 6 Article 5(4) of the proposed regulation `4. By derogation from paragraph 2 of this Article, `4. By derogation from paragraph 2 of this Article, the Commission may, on grounds of exceptional the Commission may, on grounds of exceptional economic circumstances or following a reasoned economic circumstances or following a reasoned request by the Member State concerned addressed request by the Member State concerned addressed to the Commission within ten days of adoption of to the Commission within ten days of adoption of the Council decision in accordance with Article the Council decision in accordance with Article 126(8) of the Treaty, propose to cancel or to reduce 126(8) of the Treaty, propose to cancel or to the amount of the fine.' reduce the amount of the fine.' Explanation See the explanation for the previous amendment. Amendment 7 Article 7 of the proposed regulation `The interest earned by the Commission on `The interest earned by the Commission on deposits lodged in accordance with Article 4 and deposits lodged in accordance with Article 4 and the fines collected in accordance with Article 5 the fines collected in accordance with Article 5 shall constitute other revenue referred to in Article shall constitute other revenue referred to in Article 311 of the Treaty, and shall be distributed, in 311 of the Treaty, and shall revert to the proportion to their share in the gross national European Stability Mechanism. be distributed, in income of the eligible Member States, among proportion to their share in the gross national Member States whose currency is the euro which income of the eligible Member States, among do not have an excessive deficit as determined in Member States whose currency is the euro which accordance with Article 126(6) of the Treaty and do not have an excessive deficit as determined in which are not the subject of an excessive accordance with Article 126(6) of the Treaty and imbalance procedure within the meaning of which are not the subject of an excessive Regulation (EU) No [.../...].' imbalance procedure within the meaning of Regulation (EU) No [.../...].'

Text proposed by the Commission Amendments proposed by the ECB

1 Explanation See the explanation regarding amendment 6 to the proposal for a Council Regulation amending Regulation (EC) No 1467/97.

Drafting proposals regarding the proposal for a Regulation of the European Parliament and of the Council on enforcement measures to correct excessive macroeconomic imbalances in the euro area (COM(2010) 525) Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 1 New recital (6a) of the proposed regulation

No text `(6a) A graduation of sanctions should be introduced by which the Council should already impose an interest-bearing deposit following non-compliance with the relevant deadline imposed by the Council, with a view to imposing a fine after non-compliance with two relevant

deadlines.' Explanation The imposition of an interest-bearing deposit after the first relevant non-compliance by the Member State should facilitate the imposition of fines where there is a repeated non-compliance with relevant deadlines. Amendment 2 Recital (12) of the proposed regulation `(12) The collected fines should be distributed `(12) The collected fines should be reverted to between Member States whose currency is the euro the European Stability Mechanism. distributed which are neither the subject of an excessive between Member States whose currency is the euro imbalance procedure nor have an excessive which are neither the subject of an excessive deficit.' imbalance procedure nor have an excessive deficit.' Explanation See the explanation regarding amendment 6 to the proposal for a Council Regulation amending Regulation (EC) No 1467/97.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 3 Article 1(1) of the proposed regulation `1. This Regulation sets out a system of fines for `1. This Regulation sets out a system of sanctions effective correction of macroeconomic imbalances fines for effective correction of macroeconomic in the euro area.' imbalances in the euro area.' Explanation

In order to cover not only the fines but also the interest-bearing deposits, the proposed regulation should refer to a system of sanctions. Amendment 4 Article 2 of the proposed regulation `For the purposes of this Regulation, the definitions `For the purposes of this Regulation, the definitions set out in Article 2 of Regulation (EU) No [.../...] set out in Article 2 of Regulation (EU) No [.../...] shall apply. shall apply.

In addition, the following definition shall apply: In addition, the following definition shall apply: `exceptional economic circumstances' means `exceptional economic circumstances' means circumstances where an excess of a government circumstances where an excess of a government deficit over the reference value is considered deficit over the reference value is considered exceptional within the meaning of the second exceptional within the meaning of the second indent of Article 126(2)(a) of the Treaty and as indent of Article 126(2)(a) of the Treaty and as specified in Council Regulation (EC) No specified in Council Regulation (EC) No 1467/972.' 1467/97[[note: 3]]

Explanation See the ECB's suggestions in amendment 5 regarding Article 3 of the proposed regulation and the explanation. In view of the proposed amendments to Article 3 there is no need for a definition of `exceptional economic circumstances'.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 5 Article 3 of the proposed regulation `1. A yearly fine shall be imposed by the Council, `1. An yearly fine interest-bearing deposit shall acting on a proposal by the Commission, if: be imposed by the Council, acting on a proposal by the Commission, if:

(1) two successive deadlines have been set in (1) two successive a deadlines haves been set in accordance with Articles 7(2) and 10(4) of accordance with Articles 7(2) and or 10(4) of Regulation (EU) No [.../...], and the Council Regulation (EU) No [.../...], and the Council thereafter concludes in accordance with Article thereafter concludes in accordance with Article 10(4) of that Regulation that the Member State 10(4)(1) of that Regulation that the Member State concerned has still not taken the recommended concerned has still not taken the recommended corrective action, or if corrective action, or if (2) two successive deadlines have been set in (2) two successive a deadlines haves been set in accordance with Articles 8(1) and 8(2) of accordance with Articles 8(1) and or 8(2) of Regulation (EU) No [.../...], and the Council Regulation (EU) No [.../...], and the Council thereafter concludes in accordance with Article thereafter concludes in accordance with Article 8(2) of that Regulation that the Member State 8(2) of that Regulation that the Member State concerned has again submitted an insufficient concerned has again submitted an insufficient corrective action plan. corrective action plan. The decision shall be deemed adopted by the The decision shall be deemed adopted by the Council unless it decides, by qualified majority, to Council unless it decides, by qualified majority, to reject the proposal within ten days the Commission reject the proposal within ten days the Commission adopting it. The Council may amend the proposal adopting it. The Council may amend the proposal in accordance with Article 293(1) of the Treaty. in accordance with Article 293(1) of the Treaty.

2.

The yearly fine to be proposed by the 2. The yearly fine interest-bearing deposit to be Commission shall be 0.1% of the GDP of the proposed by the Commission shall be 0.1 0.2% of Member State concerned in the preceding year. the GDP of the Member State concerned in the preceding year.
3.

By derogation from paragraph 2, the 3. By derogation from paragraph 2, the Commission may, on grounds of exceptional Commission may, on grounds of exceptional economic circumstances or following a reasoned economic circumstances or following a reasoned request by the Member State concerned addressed request by the Member State concerned addressed to the Commission within ten days of adoption of to the Commission within ten days of adoption of

Text proposed by the Commission Amendments proposed by the ECB

1 propose to reduce the amount of the fine or to propose to reduce the amount of the fine or to cancel it. cancel it.

4.

If a Member State has paid a yearly fine for a 4. If a Member State has paid a yearly fine given calendar year and the Council thereafter constituted the interest-bearing deposit for a concludes, in accordance with Article 10(1) of given calendar year and the Council thereafter Regulation (EU) No [.../...] that the Member State concludes, in accordance with Article 10(1) of has taken the recommended corrective action in the Regulation (EU) No [.../...] that the Member State course of the given year, the fine paid for the given has taken the recommended corrective action in the year shall be returned to the Member State pro rata course of the given year, the fine deposit paid for temporis.' the given year together with the accrued interest shall be returned to the Member State pro rata temporis.
5.

A yearly fine shall be imposed by the Council,

acting on a proposal by the Commission, if:

(1) two successive deadlines have been set in

accordance with Articles 7(2) or 10(4) of Regulation (EU) No [.../...], and the Council thereafter concludes in accordance with Article 10(1) of that Regulation that the Member State concerned has still not taken the recommended corrective action.

(2) two successive deadlines have been set in

accordance with Articles 8(1) or 8(2) of Regulation (EU) No [.../...], and the Council thereafter concludes in accordance with Article 8(2) of that Regulation that the Member State concerned has again submitted an insufficient corrective action plan.

6.

If a Member State has paid a yearly fine for a

given calendar year and the Council thereafter concludes, in accordance with Article 10(1) of Regulation (EU) No [.../...] that the Member State has taken the recommended corrective

Text proposed by the Commission Amendments proposed by the ECB

1 paid for the given year shall be returned to the Member State pro rata temporis.

7.

The annual fine shall be 0,2% of the Member

State's GDP in the preceding year.' Explanation The ECB recommends that one deadline could suffice for the imposition of the deposit, which would allow for a more graduated sanctions regime, since the fines could then be imposed on the basis of repeated non-compliance. In addition, the ECB proposes deleting revision steps which lengthen the procedure and reduce automaticity. Amendment 6 Article 4 of the proposed regulation `Fines collected in accordance with Article 3 of `Fines collected in accordance with Article 3 of this Regulation shall constitute other revenue, as this Regulation shall constitute other revenue, as referred to in Article 311 of the Treaty, and shall referred to in Article 311 of the Treaty, and shall be distributed, in proportion to their share in the

be reverted

to the European Stability total gross national income (GNI) of the eligible Mechanism.distributed, in proportion to their Member States, between Member States whose share in the total gross national income (GNI) of currency is the euro and which are not the subject the eligible Member States, between Member of an excessive imbalance procedure within the States whose currency is the euro and which are meaning of Regulation (EU) No [.../...] and do not not the subject of an excessive imbalance have an excessive deficit as determined in procedure within the meaning of Regulation (EU) accordance with Article 126(6) of the Treaty.' No [.../...] and do not have an excessive deficit as determined in accordance with Article 126(6) of the Treaty.' Explanation See the explanation regarding amendment 6 to the proposal for a Council Regulation amending Regulation (EC) No 1467/97.

Drafting proposals regarding the proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (COM(2010) 526) Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 1 Recital 7 `(7) The obligation to achieve and maintain the `(7) The obligation to achieve and maintain the medium-term budgetary objective needs to be put medium-term budgetary objective could be into operation, through the specification of supplemented needs to be put into operation, principles of prudent fiscal policymaking.' through the specification of principles of prudent fiscal policymaking.' Explanation The ECB doexs not see a need to use the prudent fiscal policymaking concept. Amendment 2 Recital 9 of the proposed regulation `(9) Prudent fiscal policy making implies that the `(9) Sufficient progress towards the medium- growth rate of government expenditure does term budgetary objective should be evaluated normally not exceed a prudent medium-term on the basis of an overall assessment with the growth rate of GDP, increases in excess of that structural balance as a reference, including an norm are matched by discretionary increases in analysis of expenditure net of discretionary government revenues and discretionary revenue revenue measures. In this regard, and as long as reductions are compensated by reductions in the medium-term objective is achieved, Prudent expenditure.' fiscal policy making implies that the growth rate of government expenditure should does normally not exceed a reference prudent medium-term growth rate of potential GDP growth, while expenditure increases in excess of that norm should be

Text proposed by the Commission Amendments proposed by the ECB

1 matched by discretionary increases in government revenues and discretionary revenue reductions should be compensated by reductions in expenditure. The projected medium-term rate of potential GDP growth should be calculated according to the common methodology used by the Commission. The impact of the growth structure on revenue growth should be considered as a means of avoiding reliance on revenue growth dependent on a certain structure of the Member State growth which may be subject to change.' Explanation The ECB recommends using clear criteria instead of abstract concepts. The structure of growth may have a significant impact on the growth of government revenues, which should be considered in the rule. Amendment 3 Recital 10 of the proposed regulation `(10) A temporary departure from prudent fiscal `(10) A temporary departure from prudent fiscal policy-making should be allowed in case of severe policy-making should be allowed in case of severe economic downturn of a general nature in order to economic downturn of a general nature in order to facilitate economic recovery.' facilitate economic recovery.' Explanation

In view of the overarching importance of fiscal sustainability, the ECB recommends deleting this open escape clause. Amendment 4 Recital 11 of the proposed regulation `(11) In the event of a significant deviation from `(11) In the event of a significant deviation from prudent fiscal-policy a warning should be the adjustment path towards the medium-term addressed to the Member State concerned and in objective, the Commission may request

Text proposed by the Commission Amendments proposed by the ECB

1 particularly serious, a recommendation should be and prudent fiscal-policy a warning should be addressed to the Member State concerned to take addressed to the Member State concerned and in the necessary corrective measures.' case the significant deviation persists or is particularly serious, a Council recommendation should be addressed to the Member State concerned setting a deadline to take the necessary corrective measures. The Member State concerned should report to the Council on the action taken. If the Member State concerned fails to take appropriate action within the deadline set by the Council, the Council should adopt a recommendation and report to the European Council.' Explanation The reporting provided for in the proposed amendment would increase pressure on non-compliant Member States. Amendment 5 New recital (11a) of the proposed regulation

No text `(11a) An advisory body

of persons

recognised competence in economic and fiscal matters should be established in order for them to provide, on an annual basis, an independent report addressed to the Union institutions on the way the Commission and the Council have conducted their obligations under Articles 121 and 126 of the Treaty and under Regulation

(EC) No 1466/97, [under Regulation (EC) No

1467/97, and under the following Regulations: Regulation (EU) No [.../...] on the effective enforcement of budgetary surveillance in the euro area; Regulation (EU) No [.../...] on enforcement measures to correct excessive

Text proposed by the Commission Amendments proposed by the ECB

1 Regulation (EU) No [.../...] on the prevention and correction of macroeconomic imbalances]. Where this body's capacity allows and following a request by the Commission, the Council or the

European Council, this body should also provide analysis on specific economic or budgetary issues. This body should not infringe on the Commission's competence. The Members of this advisory body should be fully independent.' Explanation The ECB considers that this advisory body would contribute to compliance by the Council and the Commission with their obligations under the Treaty and under the procedures addressed in the Commission proposals. It should be established by this Regulation and the other regulations addressed in the Commission proposals should make cross-references to it. Without prejudice to its main task and if its resources allow, specific analysis could be requested from it by the European Council, the Council or the European Commission. Clarifying that this body's tasks do not encroach on the Commission's competences should be added. Amendment 6 Recital 12 of the proposed regulation `(12) In order to ensure compliance with the fiscal `(12) In order to ensure compliance with the fiscal surveillance framework of the Union for surveillance framework of the Union for participating Member States,

a specific participating Member States, a specific enforcement mechanism should be established on enforcement mechanism should be established on the basis of Article 136 of the Treaty for cases the basis of Article 136 of the Treaty for cases where a persistent and significant deviation from where a persistent and significant deviation from prudent fiscal policy making prevails.' the adjustment path towards the medium-term budgetary objective prudent fiscal policy making prevails.'

Text proposed by the Commission Amendments proposed by the ECB

1 Explanation

A clear reference to a significant deviation of the adjustment path towards the medium-term budgetary

objective is preferable to the wider concept of prudent fiscal policy making. Amendment 7 Article 1(2)(c) of the proposed regulation (Article 3(3) of Regulation (EC) No 1466/97) `3. The information about the paths for the general `3. The information about the paths for the general government balance and debt ratio, the growth of government balance and debt ratio, the growth of government expenditure, the planned growth path government expenditure, the planned growth path of government revenue at unchanged policy, the of government revenue at unchanged policy, the planned discretionary revenue measures and the planned discretionary revenue measures, main economic assumptions referred to in appropriately quantified, and the main economic paragraph 2(a) and (b) shall be on an annual basis assumptions referred to in paragraph 2(a) and (b) and shall cover, the preceding year, the current shall be on an annual basis and shall cover, the year and at least the following three years.' preceding year, the current year and at least the following three years.' Explanation There is a need for a stricter quantification requirement concerning the discretionary revenue measures. Amendment 8 Article 1(4) of the proposed regulation (Article 5(1) of Regulation (EC) No 1466/97) `1.[ ...] `1. [...] The Council, when assessing the adjustment path The Council, when assessing the adjustment path toward the medium-term budgetary objective, shall toward the medium-term budgetary objective, shall examine if the Member State concerned pursues an examine if the Member State concerned pursues an appropriate annual improvement of its cyclically-appropriate annual improvement of its cyclically- adjusted budget balance, net of one-off and other adjusted budget balance, net of one-off and other temporary measures, required to meet its medium-temporary measures, required to meet its medium- term budgetary objective, with 0.5% of GDP as a term budgetary objective, with 0.5% of GDP as a

Text proposed by the Commission Amendments proposed by the ECB

1 benchmark. For Member States with a high level of benchmark. For Member States with a high level of debt or excessive macroeconomic imbalances or debt level of government debt exceeding 60% of both, the Council shall examine whether the annual the GDP reference value or with pronounced improvement of the cyclically-adjusted budget risks in terms of fiscal sustainability or with balance, net of one-off and other temporary excessive macroeconomic imbalances or both, the measures is higher than 0.5% of GDP. The Council Council shall examine whether the annual shall take into account whether a higher adjustment improvement of the cyclically-adjusted budget effort is made in economic good times, whereas the balance, net of one-off and other temporary effort may be more limited in economic bad times. measures is significantly higher than 0.5% of [...] GDP. The Council shall take into account whether a higher adjustment effort is made in economic

good times, whereas the effort may be more limited in economic bad times. The impact of the growth structure on revenue growth shall be considered. [...] The prudent medium-term of growth should be The prudentreference medium-term rate of assessed on the basis of projections over a ten-year potential GDP growth should be assessed on the horizon updated at regular intervals. basis of projections over a ten-year horizon [...] updated at regular intervals. [...] The Council shall furthermore examine whether The Council shall furthermore examine whether the contents of the stability programme facilitate the contents of the stability programme facilitate the achievement of sustained convergence within the maintenance achievement of sustained the euro area, closer coordination of economic convergence within the euro area, closer policies and whether the economic policies of the coordination of economic policies and whether the Member State concerned are consistent with the economic policies of the Member State concerned broad guidelines of economic policies of the are consistent with the broad guidelines of Member States and of the Union. economic policies of the Member States and of the Union.

In periods of severe economic downturn of a In periods of severe economic downturn of a general nature Member States may be allowed to general nature Member States may be allowed to temporarily depart from the adjustment path temporarily depart from the adjustment path implied by prudent fiscal-policy making referred to implied by prudent fiscal-policy making referred to

Text proposed by the Commission Amendments proposed by the ECB

1 in the fourth subparagraph.' in the fourth subparagraph.' Explanation

In addition to the self-explanatory technical remarks, the possibility of departing from the adjustment path on the basis of `severe economic downturn of a general nature', means that the adjustment path, which is already based on the abstract concept of `prudent fiscal policy making' would be subject to an additional escape clause, which would undermine fiscal sustainability. Amendment 9 Article 1(5) of the proposed regulation (Article 6(2) and (3) of Regulation (EC) No 1466/97) `2. In the event of a significant deviation from [order of first and second subparagraph of Article prudent fiscal-policy making referred to in the 6(2) reversed] fourth subparagraph of Article 5(1) of this `2. An observed deviation from the adjustment regulation, and in order to prevent the occurrence path towards the medium-term objective of an excessive deficit, the Commission, in prudent fiscal policy making shall be considered accordance with Article 121(4) of the Treaty may significant if the following conditions occur: (a) address a warning to the Member State concerned. the annual improvement of the structural

A deviation from prudent fiscal policy making balance does not meet the requirement under

shall be considered significant if the following the second subparagraph of Article 5(1) or (b) conditions occur: an excess over the expenditure an excess over theof expenditure growth over the growth consistent with prudent fiscal policy-reference medium-term rate of potential GDP making, not offset by discretionary revenue-growthconsistent with prudent fiscal policy

-

increasing measures; or discretionary revenue-making, not offset by discretionary revenue- decreasing measures not offset by reductions in increasing measures; or discretionary revenue- expenditure; and the deviation has a total impact on decreasing measures not offset by reductions in the government balance of at least 0.5 % of GDP in expenditure; and the deviation has a total negative one single year or of at least 0.25 % of GDP on impact on the government balance of at least 0.25 average per year in two consecutive years. % of GDP in one single year or of at least 0.25 %

of GDP on average per year in two consecutive years. The impact of the growth structure on revenue growth shall be considered.

In the event of a significant observed deviation from the adjustment path towards the medium-

Text proposed by the Commission Amendments proposed by the ECB

1 term budgetary objective prudent fiscal-policy making referred to in the fourth subparagraph of Article 5(1) of this regulation, and in order to prevent the occurrence of an excessive deficit, the Commission, may request additional reporting from the Member State concerned and in accordance with Article 121(4) of the Treaty may address a warning to the Member State concerned. The Council, within one month from the date of adoption of the warning by the Commission, shall adopt a recommendation for policy measures setting a deadline for addressing the deviation, on the basis of a Commission recommendation, based on Article 121(4) of the Treaty. Within the deadline set by the Council in the recommendation under Article 121(4) of the Treaty, the Member State concerned shall report to the Council on action taken in response to said recommendation.

If the Member State concerned fails to take appropriate action within five months from the date of the adoption of the recommendation by the Council under Article 121(4) of the Treaty, the Council shall immediately adopt a recommendation, on the basis of a Commission recommendation based on Article 121(4) of the Treaty, and shall report to the European Council. Following the adoption of the latter Council recommendation, the Commission, in liaison with the ECB if it deems it appropriate, may carry out a monitoring mission. The Commission shall report to the Council on the outcome of the mission and may decide to make its findings public.

Text proposed by the Commission Amendments proposed by the ECB

1 The deadline of five months shall be reduced to three if the Commission in its recommendation to the Council referred to in the second subparagraph of the present paragraph, considers that the situation is particularly serious and warrants urgent action.

3.

In the event that the significant deviation from 3. In the event that the significant deviation from prudent fiscal-policy making persists or is prudent fiscal-policy making persists or is particularly serious, the Council,

a particularly serious, the Council,

a recommendation from the Commission, shall recommendation from the Commission, shall address a recommendation to the Member State address a recommendation to the Member State concerned to take the necessary adjustment concerned to take the necessary adjustment measures. The Council, on a proposal from the measures. The Council, on a proposal from the Commission, shall make the recommendation Commission, shall make the recommendation public.' public.' Explanation The procedure should be overhauled and new steps should be introduced to make the procedure more effective, including the possibility of missions. Amendment 10 Article 1(8) of the proposed regulation (Article 9(1) of Regulation (EC) No 1466/97) `1. [...] `1. [...] The Council, when assessing the adjustment path The Council, when assessing the adjustment path toward the medium-term budgetary objective, shall toward the medium-term budgetary objective, shall take into account whether a higher adjustment take into account whether a higher adjustment effort is made in economic good times, whereas the effort is made in economic good times, whereas the effort may be more limited in economic bad times. effort may be more limited in economic bad times. For Member States with a high level of debt or For Member States with a high level of excessive macroeconomic imbalances or both, the government debt exceeding the 60% of GDP Council shall examine whether the annual reference value or with pronounced risks in

Text proposed by the Commission Amendments proposed by the ECB

1 balance, net of one-off and other temporary macroeconomic imbalances or both], the Council measures is higher than 0.5% of GDP. For ERM2 shall examine whether the annual improvement of Member States, the Council shall examine if the the cyclically-adjusted budget balance, net of one- Member State concerned pursues an appropriate off and other temporary measures is significantly annual improvement of its cyclically adjusted higher than 0.5% of GDP. For ERM2 Member balance, net of one-off and other temporary States, the Council shall examine if the Member measures, required to meet its medium-term State concerned pursues an appropriate annual budgetary objective, with 0.5% of GDP as a improvement of its cyclically adjusted balance, net benchmark. of one-off and other temporary measures, required [...] to meet its medium-term budgetary objective, with 0.5% of GDP as a benchmark. The impact of the

growth structure on revenue growth shall be considered. [...] The prudent medium-term of growth should be The prudent reference medium-term of rate of assessed on the basis of projections over a ten-year potential GDP growth should be assessed on the horizon updated at regular intervals. basis of projections over a ten-year horizon [...] updated at regular intervals. [...] The Council shall furthermore examine whether The Council shall furthermore examine whether the contents of the convergence programme the contents of the convergence programme facilitate the closer coordination of economic facilitate the achievement

of sustained policies and whether the economic policies of the convergence, the closer coordination of economic Member State concerned are consistent with the policies and whether the economic policies of the broad guidelines of economic policies of the Member State concerned are consistent with the Member States and of the Union. In addition, for broad guidelines of economic policies of the ERM2 Member States, the Council shall examine Member States and of the Union. In addition, for whether the content of the convergence programme ERM2 Member States, the Council shall examine ensure a smooth participation in the exchange rate whether the content of the convergence programme mechanism. ensure a smooth participation in the exchange rate mechanism.

Text proposed by the Commission Amendments proposed by the ECB

1 in the fourth subparagraph.' in the fourth subparagraph.' Explanation See the explanations for the preceding proposed amendments to this proposed regulation. Amendment 11 Article 1(9) of the proposed regulation (Article 10(2) of Regulation (EC) No 1466/97) `2. [...] `2. [...]

A deviation from prudent fiscal policy making An observed deviation from the adjustment path

shall be considered significant if the following towards the medium-term budgetary conditions occur: an excess over the expenditure objectiveprudent fiscal policy making shall be growth consistent with prudent fiscal policy-considered significant if the following conditions making, not offset by discretionary revenue-occur: (a) the annual improvement of the increasing measures; or discretionary revenue-structural balance does not meet the decreasing measures not offset by reductions in requirement under the second subparagraph of expenditure; and the deviation has a total impact on Article 9(1) or (b) an excess of over the the government balance of at least 0.5% of GDP in expenditure growth over the reference medium- one single year or of at least 0.25% of GDP on term rate of potential GDP growthconsistent average per year in two consecutive years. with prudent fiscal policy-making, not offset by discretionary revenue-increasing measures; or discretionary revenue-decreasing measures not offset by reductions in expenditure; and the deviation has a total negative impact on the government balance of at least 0.25% of GDP in one single year or of at least 0.25% of GDP on average per year in two consecutive years. The [...] impact of the growth structure on revenue growth shall be considered. [...] The deviation may be equally not considered in The deviation may be equally not considered in case of severe economic downturn of a general case of severe economic downturn of a general nature.' nature.

Text proposed by the Commission Amendments proposed by the ECB

In the event of a significant observed deviation from the adjustment path towards the medium- term budgetary objective referred to in the fourth subparagraph of Article 9(1) of this Regulation, the Commission, may request additional reporting from the Member State concerned and, in accordance with Article 121(4) of the Treaty may address a warning to the Member State concerned. The Council, within one month from the date of adoption of the warning by the Commission, shall adopt a recommendation for policy measures setting a deadline for addressing the deviation, on the basis of a Commission recommendation, based on Article 121(4) of the Treaty. Within the deadline set by the Council in the recommendation under Article 121(4) of the Treaty, the Member State concerned shall report to the Council on action taken in response to the Council recommendation.

If the Member State concerned fails to take appropriate action within five months from the date of the adoption of the recommendation by the Council under Article 121(4) of the Treaty, the Council shall immediately adopt a recommendation, on the basis of a Commission recommendation based on Article 121(4) of the Treaty, and shall report to the European Council. Following adoption of this latter Council recommendation, the Commission, in liaison with the ECB if it deems it appropriate for Member States participating in ERM2, may carry out a monitoring mission. The

Text proposed by the Commission Amendments proposed by the ECB

1 outcome of the mission and may decide to make its findings public. The deadline of five months shall be reduced to three if the Commission in its recommendation to the Council referred to in the second subparagraph of the present paragraph, considers that the situation is particularly serious and warrants urgent action.' Explanation The proposed amendment clarifies the deviation and sets out the steps of the procedure. Amendment 12 Article 11 of Regulation (EC) No 1466/97 new paragraph 2

No text `2. An advisory body of persons of recognised competence in economic and fiscal matters shall

be established.

It shall provide a yearly public report on the manner in which the Commission and the Council have conducted their obligations under Articles 121 and 126 of the Treaty and under Regulation (EC) No 1466/97, under Regulation (EC) No 1467/97, and under the following

Regulations: Regulation (EU) No [.../...] on the effective enforcement of budgetary surveillance in the euro area; Regulation (EU) No [.../...] on enforcement measures to correct excessive

macroeconomic imbalances in the euro area;

Regulation (EU) No [.../...] on the prevention and correction of macroeconomic imbalances. Following a request by the Commission, the Council or the European Council, this advisory body shall also provide analysis on specific economic or budgetary issues. The Members of

Text proposed by the Commission Amendments proposed by the ECB

1 this advisory body shall be independent in the performance of their tasks.' Explanation See the explanation for amendment 5 above in relation to the proposed new recital 11a.

Drafting proposals regarding the proposal for a Regulation of the European Parliament and of the Council on the prevention and correction of macroeconomic imbalances (COM(2010) 527) Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 1 Recital 3 of the proposed regulation `(3) In particular, surveillance of the economic `(3) In particular, surveillance of the economic policies of the Member States should be broadened policies of the Member States should be broadened beyond budgetary surveillance to prevent excessive beyond budgetary surveillance to prevent excessive macroeconomic imbalances and help the Member macroeconomic imbalances and also States affected devise corrective plans before vulnerabilities and help the Member States divergences become entrenched. This broadening affected devise corrective plans before divergences of the economic surveillance framework should go become entrenched. This broadening of the in parallel with deepening of fiscal surveillance.' economic surveillance framework should go in parallel with deepening of fiscal surveillance.' Explanation The preventive nature of the procedure would be enhanced by means of the inclusion of the expression `vulnerabilities' in addition to that of `imbalances', given that there will be a number of situations that a sound macroeconomic governance would need to cover within this procedure but which may not entirely fall within the current understanding of the term `imbalances'. Amendment 2 Recital 4 of the proposed regulation `(4) To help address such imbalances a procedure `(4) To help address such imbalances and laid down in detail in legislation is necessary.' vulnerabilities, a procedure laid down in detail in legislation is necessary.' Explanation See explanation for amendment 1.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 3 Recital 5 of the proposed regulation `(5) It is appropriate to supplement the multilateral `(5) It is appropriate to supplement the multilateral surveillance referred to in Article 121(3) and (4) of surveillance referred to in Article 121(3) and (4) of the Treaty with specific rules for detection, the Treaty with specific rules for detection, prevention and correction of macroeconomic prevention and correction of macroeconomic imbalances.' imbalances. Macroeconomic imbalances are present where a Member State experiences situations such as large current account deficits, significant losses of competitiveness, large and unusual increases in asset prices, high levels of or a significant deterioration in external, public sector or private sector indebtedness or a significant risk thereof. Macroeconomic vulnerabilities are present where a Member State experiences a situation that sound macroeconomic surveillance of economic and monetary union would reasonably cover.' Explanation The proposed recital should help to clarify the definition of the situations to be covered by the procedure. Amendment 4 Recital 6 of the proposed regulation `(6) This procedure should rely on an alert `(6) This procedure should rely on an alert mechanism for early detection of emerging mechanism for early detection of emerging macroeconomic imbalances. It should be based on macroeconomic imbalances and vulnerabilities. It use of an indicative and transparent scoreboard should be based on use of an indicative and combined with economic judgment.' transparent scoreboard combined with economic judgment.' Explanation See explanation for amendment 1.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 5 Recital 7 of the proposed regulation `(7) The scoreboard should consist of a limited set `(7) The scoreboard should consist of a limited set of economic and financial indicators relevant to of economic and financial indicators relevant to detection of macroeconomic imbalances, with detection of macroeconomic imbalances and corresponding indicative thresholds. The vulnerabilities, with corresponding indicative composition of the scoreboard may evolve in time, thresholds. The composition of the scoreboard may inter alia due

to evolving threats

to evolve in time, inter alia due to evolving threats to macroeconomic stability or enhanced availability macroeconomic stability or enhanced availability of relevant statistics.' of relevant statistics. The scoreboard of indicators should be differentiated for Member States whose currency is the euro and Member States whose currency is not the euro in order to take into account specific features of monetary union and reflect relevant economic circumstances. Such a differentiation may also be warranted in order to take into account the cases in which all the Member States whose currency is the euro have better or more timely statistics.' Explanation The recitals should clarify the differentiation between euro area Member States and non euro area Member States in connection with this procedure. Amendment 6 Recital 8 of the proposed regulation `(8) The crossing of one or more indicative `(8) The crossing of one or more indicative thresholds need not necessarily imply that thresholds need not necessarily imply that macroeconomic imbalances are emerging, as macroeconomic imbalances and vulnerabilities economic policy-making should take into account are emerging, as economic policy-making should inter-linkages between macroeconomic variables. take into account inter-linkages between Economic judgment should ensure that all pieces macroeconomic variables. Economic judgment of information, whether from the scoreboard or should ensure that all pieces of information,

Text proposed by the Commission Amendments proposed by the ECB

1 not, are put in perspective and become part of a whether from the scoreboard or not, are put in comprehensive analysis.' perspective and become part of a comprehensive analysis.' Explanation See explanation for amendment 1. Amendment 7 Recital 9 of the proposed regulation `(9) Based on the multilateral surveillance `(9) Based on the multilateral surveillance procedure and the alert mechanism, the procedure and the alert mechanism, the Commission should identify the Member States to Commission should identify the Member States to be subject to an in-depth review. The in-depth be subject to an in-depth review. The in-depth review should encompass a thorough analysis of review should encompass a thorough analysis of sources of imbalances in the Member State under sources of imbalances and vulnerabilities in the review. It should be discussed within the Council Member State under review. It should include a and the Euro Group for the Member States whose surveillance mission by the Commission to the currency is the euro.' Member State concerned, in liaison with the ECB if it deems it appropriate when those missions concern Member States whose currency is the euro or Member States participating in the exchange-rate mechanism (ERM II). It should be discussed within the Council and the Euro Group for the Member States whose currency is the euro.' Explanation Given their importance, missions to the Member States should already be mentioned in the recitals. Amendment 8 Recital 10 of the proposed regulation `(10) A procedure to monitor and correct adverse `(10) A procedure to monitor and correct adverse macroeconomic imbalances, with preventive and macroeconomic imbalances and vulnerabilities,

Text proposed by the Commission Amendments proposed by the ECB

1 surveillance tools based on those used in the require enhanced surveillance tools based on those multilateral surveillance procedure. This may used in the multilateral surveillance procedure. include enhanced surveillance missions by the This should may include enhanced surveillance Commission to Member States and additional missions by the Commission to Member States in reporting by the Member State in case of severe liaison with the ECB if it deems it appropriate imbalances, including imbalances that jeopardise when those missions concern Member States the proper functioning of the economic and whose currency is the euro or Member States monetary union.' participating in ERM II and additional reporting by the Member State in case of severe imbalances or vulnerabilities, including imbalances that jeopardise the proper functioning of the economic and monetary union or vulnerabilities that could jeopardise it.' Explanation The proposed amendment reflects the need for the Commission to liaise with the ECB if it deems it appropriate. Amendment 9 Recital 11 of the proposed regulation `(11) When assessing imbalances, account should `(11) When assessing imbalances and be taken of their severity, of the degree to which vulnerabilities, account should be taken of their they may be considered unsustainable and of the severity, of the degree to which they may be potential negative economic and financial considered unsustainable and of the potential spillovers to other Member States. The economic negative economic and financial spillovers to other adjustment capacity and the track record of the Member States. Given the imbalances and Member State concerned as regards compliance vulnerabilities and the magnitude of the with earlier recommendations issued under this adjustment required, the need for policy action Regulation and other recommendations issued is particularly pressing in Member States under Article 121 of the Treaty as part of showing persistently large current-account multilateral surveillance, in particular the broad deficits and large competitiveness losses. The guidelines for the economic policies of the economic adjustment capacity and the track record Member States and of the Union, should also be of the Member State concerned as regards considered.' compliance with earlier recommendations issued under this Regulation and other recommendations

Text proposed by the Commission Amendments proposed by the ECB

1 issued under Article 121 of the Treaty as part of multilateral surveillance, in particular the broad guidelines for the economic policies of the Member States and of the Union, should also be considered.' Explanation The recitals should indicate the focus of the procedure and the magnitude of the efforts which would be required in connection with the findings of the procedure. Amendment 10 Recital 12 of the proposed regulation `(12) If macroeconomic imbalances are identified, `(12)

If macroeconomic imbalances

recommendations should be addressed to the vulnerabilities are identified, recommendations Member State concerned to provide guidance on should be addressed to the Member State appropriate policy responses. The policy response concerned to provide guidance on appropriate of the Member State concerned to imbalances policy responses. The policy response of the should be timely and should use all available Member State concerned to imbalances and policy instruments under the control of public vulnerabilities should be timely and should use all authorities. It should be tailored to the specific available policy instruments under the control of environment and circumstances of the Member public authorities. It should be tailored to the State concerned and cover the main economic specific environment and circumstances of the policy areas, potentially including fiscal and wage Member State concerned and cover the main policies, labour markets, product and services economic policy areas, potentially including fiscal markets and financial sector regulation.' and wage policies, labour markets, product and services markets and financial sector regulation.' Explanation See the explanation for amendment 1. Amendment 11 New recital (12a) of the proposed regulation

No text `(12a) Consistency with recommendations and

Text proposed by the Commission Amendments proposed by the ECB

1 established under Articles 121, 126 or 136 of the Treaty should be ensured. Any application of this Regulation should take due account of the commitments under ERM II agreements.' Explanation

It is essential that the different procedures in the Commission proposals are implemented in a logical, reasonable and consistent manner. In particular, the macroeconomic surveillance procedure should be consistent with the outcomes of the other procedures. The operation of this procedure should take due account of the commitments under the ERM II arrangements.In particular, all elements that are part of the ERM II procedure are subject to secrecy to safeguard the integrity of the process and facilitate consensus-building, and may therefore not form part of the surveillance procedure. Amendment 12 Recital 13 of the proposed regulation `(13) The early warnings and recommendations by `(13) The early warnings and recommendations by the European Systemic Risk Board to Member the European Systemic Risk Board to Member States or the Union address risks of a States or the Union address risks of a macrofinancial nature. These may also warrant macrofinancial nature. These may also warrant appropriate follow-up action in the context of the appropriate follow-up action in the context of the surveillance of imbalances.' surveillance of imbalances and vulnerabilities. In taking into account such warnings and recommendations for the purpose of this Regulation the confidentiality regime of the European Systemic Risk Board should be strictly respected.' Explanation While, certainly, the use of ESRB warnings and recommendations in connection with this proposed regulation should not call into question the independence of the ESRB, it is important to underline that such use can only take place provided that the confidentiality regime of the ESRB is strictly respected This is reflected in the wording of the proposed amendment to Article 5 (see amendment 20). The ESRB issues `warnings', not `early warnings'.

Text proposed by the Commission Amendments proposed by the ECB

1 Amendment 13 Recital 14 of the proposed regulation `(14) If severe macroeconomic imbalances are `(14) If severe macroeconomic imbalances or identified, including imbalances that jeopardise the vulnerabilities are identified, including proper functioning of economic and monetary imbalances that jeopardise the proper functioning union, an excessive imbalance procedure should be of economic and monetary union, an excessive initiated that may include issuing recommendations imbalance procedure should be initiated that may to the Member State, enhanced surveillance and include issuing recommendations to the Member monitoring requirements and in respect of Member State, enhanced surveillance and monitoring States whose currency is the euro, the possibility of requirements and in respect of Member States enforcement in accordance with Regulation (EU) whose currency is the euro, the possibility of

No [.../...][[note: 2]]

in the event of sustained failure to take enforcement in accordance with Regulation (EU) corrective action.' No [.../...]

[[note: 3]]

in the event of sustained failure to take corrective action.' Explanation See the explanation for amendment 1 Jeopardising of economic and monetary union is already part of the definition of imbalances. Amendment 14 Recital 16 of the proposed regulation `(16) Since an effective framework for detection `(16) Since an effective framework for detection and prevention of macroeconomic imbalances and prevention of macroeconomic imbalances and cannot be sufficiently achieved by the Member vulnerabilities cannot be sufficiently achieved by States because of the deep trade and financial inter-the Member States because of the deep trade and linkages between Member States and the spillover financial inter-linkages between Member States effect of national economic policies on the Union and the spillover effect of national economic and the euro area as a whole and can be better policies on the Union and the euro area as a whole achieved at Union level, the Union may adopt and can be better achieved at Union level, the measures in accordance with the principle of Union may adopt measures in accordance with the subsidiarity, as set out in Article 5 of the Treaty on principle of subsidiarity, as set out in Article 5 of

Text proposed by the Commission Amendments proposed by the ECB

1 European Union. In accordance with the principle the Treaty on European Union. In accordance with of proportionality, as set out in the same Article, the principle of proportionality, as set out in the this Regulation does not go beyond what is same Article, this Regulation does not go beyond necessary to achieve those objectives,' what is necessary to achieve those objectives,' Explanation See the explanation for amendment 1 Amendment 15 Article 1 of the proposed regulation `This Regulation sets out detailed rules for the `This Regulation sets out detailed rules for the detection, prevention and correction

of detection, prevention and correction

macroeconomic imbalances within the Union.' macroeconomic imbalances and vulnerabilities within the Union.' Explanation See the explanation for amendment 1 Amendment 16 Article 2 of the proposed regulation `For the purposes of this Regulation: `For the purposes of this Regulation:

(a) `imbalances' means macroeconomic (a) `imbalances' means macroeconomic developments which are adversely affecting or developments which are adversely affecting or have the potential adversely to affect, the proper have the potential adversely to affect, the proper functioning of the economy of a Member State or functioning of the economy of a Member State or of economic and monetary union, or of the Union of economic and monetary union, or of the Union as a whole. as a whole because of the emergence of situations such as large current account deficits, significant losses of competitiveness, asset price bubbles, high level of external, public sector or private sector indebtedness, a deterioration of this indebtedness or a significant risk that any of these situations arise.

Text proposed by the Commission Amendments proposed by the ECB

1 (b) `excessive imbalances' means severe (aa) vulnerabilities are situations of possible

imbalances, including imbalances that jeopardise Member State difficulty that sound the proper functioning of economic and monetary macroeconomic surveillance of economic and union.' monetary union would reasonably cover'.

(b) `excessive imbalances' means severe

imbalances, including imbalances that jeopardise the proper functioning of economic and monetary union.' Explanation The inclusion of the actual situations to be covered by the procedure brings clarity and legal certainty to the procedure. The risk that any of these situations may arise should be a triggering factor of the procedure. Amendment 17 Title of Chapter II of the proposed regulation `DETECTION OF IMBALANCES' `DETECTION

OF IMBALANCES AND VULNERABILITIES' Explanation See the explanation for amendment 1 Amendment 18 Article 3 of the proposed regulation `1. The Commission shall, after consultation with `1. The Commission shall, after consultation with Member States, establish an indicative scoreboard Member States, establish an indicative scoreboard as a tool to facilitate early identification and as a tool to facilitate early identification and monitoring of imbalances. monitoring of imbalances and vulnerabilities.

2.

The scoreboard shall be made up of an array of 2. The scoreboard shall be made up of an array of macroeconomic and macrofinancial indicators for macroeconomic and macrofinancial indicators for Member States. The Commission may set Member States. The Commission may set indicative lower or upper thresholds for these indicative lower or upper thresholds for these indicators to serve as alert levels. The thresholds indicators to serve as alert levels. The thresholds

Text proposed by the Commission Amendments proposed by the ECB

1 applicable to Member States whose currency is the and the indicators included in the scoreboard euro may be different from those applicable to the applicable to Member States whose currency is the other Member States. euro may be different from those applicable to the other Member States.

3.

The list of indicators to be included on the 3. The indicators shall be chosen to capture scoreboard and the thresholds for the indicators developments in a Member State's short- and shall be made public. long-term competitiveness and indebtedness situation. The details regarding these indicators, the inclusion of other indicators and the applicable thresholds shall be established in accordance with paragraph 1. The list of indicators to be included on the scoreboard and the thresholds for the indicators shall be made public.
4.

The Commission shall regularly assess the 4. The Commission shall regularly assess the appropriateness of the scoreboard, including the appropriateness of the scoreboard, including the composition of indicators, the thresholds set and composition of indicators, the thresholds set and the methodology used, and shall adapt it if the methodology used, and shall adapt it if necessary to preserve or enhance its capability to necessary to preserve or enhance its capability to detect emerging imbalances and monitor their detect emerging imbalances and vulnerabilities development. Changes

in the underlying and monitor their development. Changes in the methodology and composition of the scoreboard underlying methodology and composition of the and the associated thresholds shall be made scoreboard and the associated thresholds shall be public.' made public.' Explanation This proposed amendment has the dual aim of achieving greater certainty and flexibility. Amendment 19 Article 4(2) and (3) of the proposed regulation `2. The release of the updated scoreboard shall be `2. The release of the updated scoreboard shall be accompanied by a Commission report containing accompanied by a Commission report containing an economic and financial assessment putting the an economic and financial assessment putting the movement of the indicators into perspective, movement of the indicators into perspective, drawing if necessary on any other economic and drawing if necessary on any other economic and

Text proposed by the Commission Amendments proposed by the ECB

1 financial indicator relevant to detection of financial indicator relevant to detection of imbalances. The report shall also indicate whether imbalances and vulnerabilities. The report shall the crossing of lower or upper thresholds in one or also indicate whether the crossing of lower or more Member States signifies the possible upper thresholds in one or more Member States emergence of imbalances. signifies the possible emergence of imbalances and vulnerabilities.

3.

The report shall identify Member States that the 3. The report shall identify Member States that the Commission considers to be affected by, or at risk Commission considers to be affected by, or at risk of, imbalances.' of, imbalances and vulnerabilities.' Explanation See the explanation for amendment 1. Amendment 20 Article 5 of the proposed regulation `1. Taking account of the discussions in the `1. Taking account of the discussions in the Council and the Euro Group, as provided for in Council and the Euro Group, as provided for in Article 4(4), the Commission shall prepare an in-Article 4(4), the Commission shall prepare an in- depth review for each Member State it considers depth review for each Member State it considers affected by, or at risk of, imbalances. This affected by, or at risk of, imbalances. This assessment shall include an evaluation of whether assessment shall include an evaluation of whether the Member State in question is affected by the Member State in question is affected by imbalances, and of whether these imbalances imbalances and vulnerabilities, and of whether constitute excessive imbalances. these imbalances and vulnerabilities constitute excessive imbalances and vulnerabilities. The in- depth review shall involve a surveillance mission by the Commission to the Member State concerned, in liaison with the ECB if it deems it appropriate when the Member State concerned is a Member State whose currency is the euro or a Member State participating in ERM II.
2.

The in-depth review shall be made public. It 2. The in-depth review shall be made public. It shall take into account, in particular: shall take into account, in particular:

Text proposed by the Commission Amendments proposed by the ECB

1 review has taken appropriate action in response to review has taken appropriate action in response to Council recommendations or invitations adopted in Council recommendations or invitations adopted in accordance with Articles 121 and 126 of the Treaty accordance with Articles 121 and 126 of the Treaty and under Articles 6, 7, 8 and 10 of this and under Articles 6, 7, 8 and 10 of this Regulation; Regulation;

(b) the policy intentions of the Member State under (b) the policy intentions of the Member State under review, as reflected in its Stability or Convergence review, as reflected in its Stability or Convergence Programme and National Reform Programme; Programme and National Reform Programme;

(c) any early warnings or recommendations from (c) any earlywarnings or recommendations from the European Systemic Risk Board relevant to the the European Systemic Risk Board on systemic Member State under review.' risk addressed or being relevant to the Member State under review provided that the confidentiality regime of the European Systemic Risk Board is respected.' Explanation The need for actual missions and their composition should be provided for.. See the explanation regarding the need for this proposed amendment with respect to the confidentiality regime of the ESRB in amendment 12. Point (c) should refer to ESRB `warnings', not ` early warnings'. Amendment 21 Article 6(1) and (3) of the proposed regulation `1. If, on the basis of its in-depth review referred to `1. If, on the basis of its in-depth review referred to in Article 5 of this Regulation, the Commission in Article 5 of this Regulation, the Commission considers that a Member State is experiencing considers that a Member State is experiencing imbalances,

it shall inform the Council imbalances or vulnerabilities, it shall inform the accordingly. The Council, on a recommendation Council and when relevant the Euro Group from the Commission, may address the necessary accordingly. The Council, on a recommendation recommendations to the Member State concerned, from the Commission, may address the necessary in accordance with the procedure set out in Article recommendations to the Member State concerned, 121(2) of the Treaty. in accordance with the procedure set out in Article 121(2) of the Treaty. The recommendations shall be consistent with the Council recommendations and any applicable commitments of the Member

Text proposed by the Commission Amendments proposed by the ECB

1 States concerned under other surveillance procedures conducted pursuant to Article 121 and 126 of the Treaty or procedures established under Article 136 of the Treaty. The commitments under ERM II agreements shall be duly taken into account. [...] [...]

3.

The Council shall review these
3.

The Council shall review these recommendations annually and may amend them if recommendations at least annually and may amend appropriate in accordance with paragraph 1.' them if appropriate in accordance with paragraph 1. The review will be based on an in-depth

review by the Commission as laid down in Article 5.' Explanation The procedures in the Commission proposals need to be consistent with each other. The frequency of the missions has to be flexible. An in-depth review of the Commission is necessary for Council revision. Amendment 22 Article 7 of the proposed regulation `1. If, on the basis of the in-depth review referred `1. If, on the basis of the in-depth review referred to in Article 5, the Commission considers that the to in Article 5, the Commission considers that the Member State concerned is affected by excessive Member State concerned is affected by excessive imbalances,

it shall inform the Council imbalances or vulnerabilities, it shall inform the accordingly. Council and when relevant the Eurogroup accordingly.

2.

The Council, on a recommendation from the 2. The Council, on a recommendation from the Commission, may adopt recommendations in Commission, may adopt recommendations in accordance with Article 121(4) of the Treaty accordance with Article 121(4) of the Treaty declaring the existence of an excessive imbalance declaring the existence of an excessive imbalance and recommending the Member State concerned to and recommending the Member State concerned to take corrective action. Those recommendations take corrective action. Those recommendations shall set out the nature of the imbalances and shall set out the nature of the imbalances or specify the corrective action to be taken in detail vulnerabilities and specify the corrective action to

Text proposed by the Commission Amendments proposed by the ECB

1 and the deadline within which the Member State be taken in detail and the deadline within which the concerned must take such corrective action. The Member State concerned must take such corrective Council may, as provided for in Article 121(4) of action. The Council may, as provided for in Article the Treaty, make its recommendations public.' 121(4) of the Treaty, make its recommendations public.' Explanation See amendment 1. Amendment 23 Article 8(1) and (2) of the proposed regulation `1. Any Member State for which an excessive `1. Any Member State for which an excessive imbalance procedure is opened shall submit a imbalance procedure is opened shall submit a corrective action plan to the Council and the corrective action plan to the Council and the Commission within a deadline to be defined in the Commission within a deadline to be defined in the recommendations in accordance with Article 7. recommendations in accordance with Article 7, but The corrective action plan shall set out the specific at most within two months after the adoption of and concrete policy actions the Member State the recommendation. The corrective action plan concerned has implemented or intends to shall set out the specific and concrete policy implement and shall include a timetable for actions the Member State concerned has implementation thereof. implemented or intends to implement and shall include a timetable for implementation thereof.

2.

Within two months after submission of a 2. Within two months after submission of a corrective action plan and on the basis of a corrective action plan and on the basis of a Commission report, the Council shall assess the Commission report, the Council shall assess the corrective action plan. If considered sufficient, on corrective action plan. If considered sufficient, on the basis of a Commission proposal, the Council the basis of a Commission proposal, the Council shall adopt an opinion, endorsing it. If the actions shall adopt an opinion, endorsing it. If the actions taken or envisaged in the corrective action plan or taken or envisaged in the corrective action plan or their timetable for implementation are considered their timetable for implementation are considered insufficient to implement the recommendations, the insufficient to implement the recommendations, the Council shall, on the basis of a Commission Council shall, on the basis of a Commission proposal, invite the Member State to amend its proposal, invite the Member State to amend its corrective action plan within a new deadline. The corrective action plan within a new deadline,

Text proposed by the Commission Amendments proposed by the ECB

1 according to the procedure laid down in this amended corrective action plan shall be examined paragraph.' according to the procedure laid down in this paragraph.' Explanation While the ECB is aware of the limited time foreseen in the deadline that it proposes, the ECB considers effort to maintain the procedure's momentum and continuation procedures needed, whithout impacting on the quality and the feasibility of the measures covered in the action plan which have to be ensured. Amendment 24 Article 9(3) of the proposed regulation `3. The Commission may carry out surveillance `3. The Commission may shall carry out missions to the Member State concerned to surveillance missions to the Member State monitor implementation of the corrective action concerned to monitor implementation of the plan.' corrective action plan, in liaison with the ECB if it deems it appropriate when those missions concern Member States whose currency is the euro or Member States participating in ERM II.' Explanation The Commission liaison with the ECB if it deems it appropriate needs to be introduced. Amendment 25 Article 10(4) of the proposed regulation `(4) Where it concludes that the Member State has `(4) Where it concludes that the Member State has not taken the recommended corrective action, the not taken the recommended corrective action, the Council,

a recommendation from the Council,

a recommendation from the Commission, shall adopt revised recommendations Commission, shall adopt revised recommendations in accordance with Article 7, on a recommendation in accordance with Article 7, on a recommendation from the Commission, setting another deadline for from the Commission, setting another deadline for corrective action by when another assessment in corrective action by when another assessment in accordance with this Article shall be conducted.' accordance with this Article shall be conducted.

Text proposed by the Commission Amendments proposed by the ECB

1 shall also address a formal report to the European Council and the European Parliament.' Explanation These reports will improve the procedure. Amendment 26 Article 11 of the proposed regulation `The excessive imbalance procedure shall be `The excessive imbalance procedure shall be closed once the Council, on a recommendation closed once the Council, on a recommendation from the Commission, concludes that the Member from the Commission, concludes decides that the State is no longer affected by excessive Member State is no longer affected by excessive imbalances.' imbalances or vulnerabilities.' Explanation When the Council opens the excessive imbalances procedure by issung recommendations, the termination of the procedure should be made by a legal act of a similar kind, e.g a recommendation or a decision binding in its entirety/binding on its addressees.

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Opinion of the European Central Bank of 16 February 2011 on economic governance reform in the European Union (CON/2011/13) - Hoofdinhoud

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publicatiedatum	25-02-2011
kenmerk	5570/11