Wednesday

1st Dec 2021

Finance ministers give green light to EU oversight of national budgets

  • The semester system is the most significant element yet in place of a new EU economic architecture (Photo: Council of the European Union)

European finance ministers on Tuesday (7 September) gave the green light to a system of mutual supervision and oversight of each others' budgets.

But in a significant victory for the UK, London managed to wrangle an exception, allowing it to submit its spending plans to the House of Commons before it hands them over to Brussels and other member states for consideration.

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The ministers endorsed a new system of a ‘European Semester', pushing EU nations closer towards fiscal harmonisation than ever before.

The semester, to kick in as soon as January next year, will begin with the European Commission producing a survey of the overall state of the economy, identifying difficulties facing both eurozone nations and the EU as a whole. This in turn will be presented to the European Parliament.

EU member states will then submit by April broad budgetary outlines for the commission to assess. Following this, based on the commission's opinion, may then choose to issue country-specific ‘guidance' by June and July.

European economics commissioner Olli Rehn called the sign-off "a major improvement of our economic governance architecture."

"We can act preventatively, instead of sending in the fire brigade when the house is already burning."

The agreement is the most significant element yet put in place of the last year's discussions of a new EU economic architecture, provoked by the fiscal destruction wrought by the global economic crisis.

London however managed to, in the words of the British chancellor George Osborne, "secure an important agreement to protect the parliamentary procedures of the UK."

In the case of Britain, the information will be submitted for EU oversight after the submission of the spring budget to the UK parliament.

"We had a particular concern," Mr Osborne told reporters after the meeting, "that I would have to present information to the commission before the House of Commons. Events like this are unacceptable. But I am very pleased that Britain's unique schedule is explicitly recognised."

Once having won the exception, the chancellor said he cheered the new semester system: "As someone who believes strongly in single market, i welcome the creation of an architecture at the EU level that can co-ordinate supervision."

He described the oversight as "a healthy exchange of budgetary data."

Specific sanctions for flouting the ‘guidance' of the Council and Commission remain to be decided.

The European Commission will on 29 September unveil a proposal for the imposition of ‘quasi-automatic' sanctions for delinquents. It is understood that this package of measures would invert the current framework, wherein a qualified majority in the Council must be reached to impose sanctions on countries in breach of the current fiscal rules. Under the commission's plan, sanctions would be imposed automatically and it would require a qualified majority to block their imposition.

It is also thought that such a sanctions regime would initially be proposed for just eurozone countries and only in the much longer term be proposed for all EU states.

Broader discussion of what sort of punishment should be meted out is being left for European Council President's special task force on economic governance to consider. Meeting on Monday evening for the first time after the summer break, the task force did not make much progress.

No progress on bank levy talks either

The second major discussion point amongst finance chiefs, the imposition of a levy or tax on banks to to cover the costs of any future banking sector bail-out, foundered as member states are still very far apart on the details of such a move, already agreed in principle in June.

The heart of the controversy concerns whether the funds raised would be gathered together in a common pot - in Brussels jargon, a ‘resolution fund' - or return to national coffers to be spent by governments to balance their accounts.

The UK in particular does not support an EU-level resolution fund.

"We are very clear. It is up to national governments to decide what should happen to those revenues," said Mr Osborne. He added that the UK has "plenty of allies around the table" opposing a European fund.

Whither an EU Tobin Tax?

A second type of levy, a tax on financial transactions, possibly being extended to a range of banking products, and that would deliver up billions for spending on low-carbon infrastructure, development in the third world and social programmes domestically was also discussed, but found even less agreement.

Championed by France, the idea, also known as a ‘Tobin Tax', met with "no unanimity," as Belgian finance minister and current chair of the council of economy ministers, Didier Reynders, put it.

Blunter still was Mr Osborne, who said: "The idea of such a tax has been discussed for many decades, and, I suspect, will continue to be discussed for many decades to come."

"It is difficult to see how in practice to make it operate in a world in which capital can move very quickly outside the EU."

The worry is that unless such a tax were implemented globally, or at least by a large enough number of major powers, institutions would simply move to a jurisdiction where the tax did not exist.

A paper on an EU Tobin Tax submitted to the meeting for discussion by tax commissioner Algirdas Semeta also questioned its feasibility.

With the concept being shot down by a majority of states at this spring's G20 meeting of the world's major industrialised and emerging powers, French President Nicolas Sarkozy has said he intends to make a push for the tax when his country takes over the presidency of the global body next year.

The UK finance minister however suggested that France's "efforts at the G20 would be more fruitful if they focus on other more pressing issues."

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