European Council Adopts Fiscal Package
Monday April 04 2011 | 04:36 AM

The European Council has recently adopted a comprehensive package of measures, designed to respond to the crisis, preserve financial stability and boost growth, while at the same time strengthening economic governance and competitiveness of both the euro area and the European Union (EU).

During the course of its meeting, the Council endorsed priorities for fiscal consolidation and structural reform, underlining the need to give priority to restoring sound budgets and fiscal sustainability, and making new efforts to enhance growth.

Under the plans, member states will be required to present a multi-annual consolidation plan including specific deficit, revenue and expenditure targets, a strategy to reach these targets and a timeline for implementation. Here, the Council noted that fiscal policies for 2012 should aim to restore confidence by bringing debt trends back onto a sustainable path and by ensuring that deficits are brought back below 3% of gross domestic product within the time frame agreed.

At the same time, fiscal consolidation efforts are to be complemented by growth-enhancing structural reforms, including measures intended to make work more attractive, to reform pension systems, to attract private capital to finance growth and to boost research and innovation, the Council emphasized.

In its statement, the Council explained that the package of six legislative proposals on economic governance is key to ensuring enhanced fiscal discipline and avoiding excessive macroeconomic imbalances. It includes a reform of the Stability and Growth Pact aimed at enhancing the surveillance of fiscal policies and applying enforcement measures more consistently and at an earlier stage, new provisions on national fiscal frameworks and a new surveillance of macroeconomic imbalances.

Agreed by the euro area Heads of State or government and by Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania, the Euro Plus Pact is another measure designed to further strengthen the economic pillar of the European Monetary Union and to achieve a new quality of economic policy coordination, the Council stated, noting that the aim is to improve competitiveness thereby achieving a greater degree of convergence.

Within the context of restoring the health of the banking sector, the Council alluded to the ongoing stress tests currently being carried out, and underlined the importance of the peer review process to be conducted in close cooperation with national supervisors, the European Systemic Risk Board, the Commission and the European Central Bank in a bid to increase the consistency and quality of the results.

Member states will be tasked with preparing specific strategies for restructuring vulnerable institutions together with a solid framework for the provision of government support in the case of need, the Council added.

As agreed by the European Council in June 2010, the introduction of a global financial transactions tax is to be explored and developed further, the Council noted, explaining that the Commission aims to submit a report on taxation of the financial sector by autumn 2011.

The European Council also agreed on the main features of the European Stability Mechanism, a permanent fund with a EUR440bn effective lending capacity, due to become applicable in June 2013.