Tag Archives: sanctions

To Amend or Not to Amend? That is the Question

Today EU leaders will discuss a very important proposal put forward by France and Germany. It’s all about fiscal supervision and bail-outs, and the question is whether an amendment of the Treaties is necessary or not. Germany insists that a credible system of fiscal monitoring needs a credible sanctioning mechanism in order to keep EU Member States’ spending in check. To do that, Germany proposes the introduction of new texts in the Treaties. In exchange Germany would support a permanent bail-out mechanism. But it turns out that many are opposed to this proposal.

A number of media (EUobserver, Euractiv, FT’s brusselsblog) report that a number of Member states are very critical of the proposal. Viviane Reding has called the plans “irresponsible” and has been immediately reprimanded by France’s State Secretary in charge of European affairs, Pierre Lellouche. But that’s another story.

The important debate here is not whether an amendment is achievable in the medium term (it will probably be put to referendum in Ireland and possibly the UK and Denmark). The conceptual shift in the coordination of economic governance is where interests of Member States diverge.

Germany wants to impose strict fiscal discipline on all eurozone members, including the possibility of removing a Member State’s voting rights. But many argue that such budget austerity may not be the solution to the problem. George Soros himself has compared the proposals to the 1930s, where some countries became overly focused on balancing budgets during a depression. Other go further and note that it is Greece, in fact, which is bailing out Germany – in the form of an annual trade deficit that has averaged 5 billion euros, stimulating German jobs but destroying them in Greece. That is why many economists advocate for measures to stimulate demand in trade surplus countries – Germany, Netherlands, Denmark, etc.

Axel Weber, president of the German national bank, disagrees. He says that the proposal of raising wages to support domestic demand and reduce competitiveness neglects that wages are not a political control variable. Moreover, according to him simulation studies show that the effects would be confined almost entirely to the home economy in the form of changes in employment.

So who’s got it right? I’m not sure, and I am (thankfully) not an economist. But the German position will not be easy to defend unless it addresses the concerns about German policies that stimulate the aggregation of a trade surplus.

The EU Sanctions on Iran – the Legal Background

We all know that the EU has imposed stricter sanctions on Iran than provided for in the United Nations Security Council resolution 1929 (2010). It is interesting, though, to consider the legal background of this measure.

The new sanctions are imposed with a Council decision based on art. 29 TEU. The decision prohibits the supply, sale or transfer to Iran of further items, materials, equipment, goods and technology, in addition to those determined by the Security Council or the Committee, that could contribute to Iran’s enrichment-related, reprocessing or heavy water- related activities, or to the development of nuclear weapon delivery systems. The decision imposes restrictions on financial transactions to and from Iran, freezing of funds, as well as inspections on all Iranian cargo and admission restrictions for certain individuals.

Commission Proposals on Enhancing Economic Policy Coordination

The Commission has presented its communication on enhancing the coordination of economic policy in the European Union. The main components:

An alert system, including a set of indicators revealing external and internal imbalances combined with qualitative expert analyses. Alert thresholds will be defined and announced for each indicator. In particularly serious cases, the Commission would recommend placing the Member State in an “excessive imbalances position”.

An enforcement mechanism – a Member State in “excessive imbalances position” would be subject to stricter surveillance. The Council would issue policy recommendations; more stringent rules would apply to euro area Member States. By end-September, the Commission will make formal proposals for secondary legislation establishing a framework for dealing with excessive imbalances.

Thematic structural reform surveillance – this surveillance will be carried out in accordance with Article 121 and 148 TFEU and on the basis of the Europe 2020 Integrated Guidelines. . Based on Member States’ National Reform Programmes the Commission will assess the way each country has addressed the bottlenecks it has identified and how it is progressing towards its national Europe 2020 targets.

Reforms of national fiscal frameworks – including fiscal rules and credible enforcement mechanisms; multi-annual budgetary planning.

Enforced Stability and Growth Pact – requirement for Medium-Term budgetary objective (MTO) for Member States with a level of debt or pronounced risks in terms of future debt developments; a clear and simple numerical benchmark for defining a satisfactory pace of debt reduction.

Appropriate sanctions and incentives – an interest-bearing deposit for euro area Member States; ex-ante conditionality linking disbursement of cohesion policy support to structural and institutional reforms; reduction of EU funds payment to Member States or payments for which Member States act as an intermediary (end beneficiaries should not be affected).

The coordination cycle – complementarity of national budgets will be ensured at European level through policy guidance before final decisions on the budget for the following year are taken in Member States. The so-called European Semester will start with an “Annual Growth Survey” prepared by the Commission. By February the European Council provides strategic guidance on policies, which is taken into account by Member States in their Stability and Convergence Programmes (SCPs) and National Reform Programmes (NRPs)which will be submitted in April. The Council issues country-specific policy guidance in early July. In the second part of the year, Member States finalise national budgets. The European Semester will cover all elements of economic surveillance, including policies to ensure fiscal discipline, macroeconomic stability, and to foster growth, in line with the Europe 2020 strategy.

Division on 2020 Economic Objectives

The Spanish presidency has expressed its opinion that the 2020 economic guidelines for the European Union should be backed by some sort of sanctions. Germany was quick to criticize the idea, and the Spanish government has somewhat retreated.

But even the FT Deutschland acknowledges that the structural imbalances in the EU are already benefiting Export Germany.

Member States Demand Sanctions for Bulgaria and Romania

The spokesman of the European Commission has reportedly said that some Member States have demanded sanctions for Bulgaria and Romania due to failed fight against corruption and misuse of EU funds.

This is not news for me, but we still need to see any public claims and the supporting arguments of those unnamed Member States.