Tag Archives: conditionality

The Commission Proposals for Coordination of Economic Governance

The Commission has issued a communication on reform of economic governance in the eurozone, called “Reinforcing economic policy coordination”. EUobserver reports that the proposals have drawn an immediate rebuke from Sweden.

Here’s a list of major proposals:

Improving the functioning of existing mechanisms under the Stability and Growth Pact

• Increase effectiveness of Stability and Convergence Programmes assessments through better ex-ante coordination, including competitiveness developments and underlying structural challenges. This will be done by a scoreboard with details on developments in current accounts, net foreign asset positions, productivity, unit labour costs, employment, and real effective exchange rates, as well as public debt and private sector credit and asset prices.

• National fiscal frameworks to better reflect the priorities of EU budgetary surveillance. This would include formulation of more timely country-specific recommendations, a system of early peer-review of national budgets, a horizontal assessment of the eurozone fiscal stance

Addressing high public debt and safeguarding long-term fiscal sustainability

• Give new prominence to the debt criterion of the Treaty. Conditionality would typically involve an appropriate mix of fiscal consolidation and the strengthening of fiscal governance including tax policies; financial sector stabilisation to the extent that financial sector distress is at the root of the public finances problems; and broader policy interventions to restore macroeconomic stability and external viability.

• Take better account of the interplay between debt and deficit

Better incentives and sanctions to comply with the rules of the Stability and Growth Pact

• Interest-bearing deposits in case of inadequate fiscal policies

• More rigorous and conditional use of EU expenditure to ensure better compliance with the rules of the Stability and Growth Pact

• Recurrent breaches of the Pact to be subjected to more speedy treatment and more rigorous use of the Cohesion Fund Regulation

The Greek Bailout: the Details

The Greek bailout is here, and we have the details:

The financial package makes available € 110 billion to help Greece meet its financing needs, with euro area Member States ready to contribute for their part € 80 billion, and the rest provided by the IMF. The first disbursements will be made available before the payment obligations of the Greek government fall due on 19 May.

Euro area financial support will be provided under strong policy conditionality, on the basis of a programme which has been negotiated with the Greek authorities by the Commission and the IMF, in liaison with the ECB.

The programme will include the following measures:

  • Greece is subject to a check by IMF/EU each quarter;
  • 5pc point reduction in fiscal deficit in 2010;
  • Goal is to drive deficit down to 3% of GDP by end-2014;
  • Debt-to-GDP ratio is forecast to grow from 115% to 140% (but these are the Maastricht numbers. Add some 10pc point to get the total debt);
  • Individual measures include, another increase in VAT from 21 to 23% (plus increase for smaller VAT rates), 10% increase in excise taxes on fuel, cigarettes and drinks, a windfall tax, a property tax, near abolition of 13 and 14th month pay in the public sector, cut of Christmas and Easter bonuses, cuts in pensions, reducing early retirement.

The shortcomings of the plan according to Eurointelligence:

  • No public sector layoffs, or change of status of public sector job;
  • No complete removal of 13/14th month salary in public sector;
  • No removal of 13/14th month salary in private sector, meaning more unemployment;
  • No immediate privatisation of state companies;
  • No change to rule that caps dismissals to 4% of workforce, and no change to firing costs;
  • No anti tax-evasion mechanism.

I would also recommend reading an interview with one of my favourite philosophers, Jürgen Habermas, on the Greek bailout, the institutional challenges, and the German intransigence.