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28th May 2022

MEPs agree proposals toward 'fiscal union'

  • The laws go right to the heart of national sovereignty (Photo: Images_of_Money)

The European Parliament on Wednesday (13 June) approved draft laws that would strongly increase Brussels' power over eurozone countries' budgets. But they tempered the previously austere proposals with measures for growth, debt redemption and democratic scrutiny.

"This is the core of a fiscal union," said Austrian MEP and socialist leader Hannes Swoboda.

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"This is the first time that there is a structural solution [to the eurozone crisis] on the table," said Liberal leader Guy Verhofstadt. His Green counterpart Daniel Cohn-Bendit called it a "milestone" for the strength of agreement among MEPs.

The pair of laws - also known as the two-pack - is among the most far-reaching ever proposed.

They enable the European Commission to call for revision of national budgets and place single currency countries either in, or approaching, financial difficulties under a tight monitoring regime.

They form the core of the eurozone's attempt to prevent the current crisis from ever happening again. But MEPs, taking advantage of the renewed sense of urgency since the laws were first proposed in November, have added a series of controversial proposals.

They want a European Debt Redemption Fund that would bring together the debt of eurozone countries that is greater than 60 percent of GDP, allowing it to be repaid in the long term at lower interest rates.

The draft would bind the commission to proposing a "roadmap" for establishing eurobonds (the mutualising of eurozone debt) once the legislation comes into place.

Their revised law would also oblige the commission to come forward with a proposal for a "growth facility" that would see 1 percent of eurozone GDP per year put towards infrastructure projects.

While strengthening the commission's power over financially troubled countries even further than the commission itself had proposed, MEPs said any budget cuts sought by Brussels must not kill off growth. Meanwhile, the commission's extra powers will be reviewed and revoked if abused.

The draft law now has to be negotiated with member states. Pressure to change parts of the proposal is expected to be high.

French centre-right MEP Jean-Paul Gauzès said his proposal - allowing the commission to place a country on the verge of default under legal protection from bankruptcy - had seen a lot of lobbying "from high quarters," with critics saying the idea risks spooking markets.

"I hope that all political groups stand firm. The member states will feed you fairy tales," said Cohn-Bendit in anticipation of the negotiations.

The parliament's political groups have in past weeks been divided on several of the laws' amendments.

When the reports on the two draft laws only squeaked through at the committee stage, it was decided to put them to vote in plenary in order to try and present a more united front to member states.

The strong majority on Wednesday means that the "European parliament can send out a strong signal," said Belgian centre-right MEP Marianne Thyssen.

Much will depend on the wider political context.

"Before [French President Francois] Hollande's vote, I would have said the redemption fund was just a negotiating chip they would let drop. But now the political winds have changed," said one official in the parliament.

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