European Fiscal Compact

The European fiscal pact (English European Fiscal Compact, French Pacte budgétaire européen ) denotes contents and measures from the "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union " ( TSCG ) provided on the Maastricht Treaty, or on those EU convergence criteria based (60 % debt limit in relation to GDP and 3 % annual budget deficit in relation to GDP ). A significant innovation in the " TSCG " refers now ( in addition to the " Maastricht criteria " ) the possibility of financial sanctioning for non-compliance.

Participating countries whose structural deficit (annual borrowing less from the economy deficit ) 0.5 % of their GDP or the total debt ratio exceeds 60% of GDP have to submit their budgetary and economic partnership programs with measures to reduce debt by the European Commission and the European Council and to be approved by them.

The contract provides for two groups to participate, the currently 17 members of the euro area ( in full ) and the other States of the EU (limited validity ). The approval of the "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union " is a basic condition in order to receive as a vulnerable state budget loans from the ESM can.

• 4.1 Evaluation 2012
• 4.2 Evaluation 2013

Background

In 2007, the then President of the European Central Bank ( ECB) Jean -Claude Trichet suggested that the EU should develop a fiscal union, with the aim to ensure a prudent fiscal policies in all Member States. Similarly, the International Monetary Fund expressed.

The end of 2010 the first proposals were made to reform the rules of the Stability and Growth Pact to strengthen fiscal coordination. In February 2011, France and Germany had driven the Euro Plus Pact to improve economic policy coordination in the euro zone. Spain joined this goal. Among the most outspoken advocates of a common fiscal union alongside German Chancellor Angela Merkel also includes numerous current EU finance ministers and the head of the European Central Bank.

Germany had urged other Member States to introduce a debt brake in its model in order to achieve a clear debt ceiling, strict budgetary discipline and a balanced budget. Debt brakes in all euro countries imply a much stronger fiscal discipline than the existing EU rules. According to the German Chancellor Angela Merkel, the European Commission and the European Court of Justice should ensure that countries meet their obligations.

On 9 December 2011, all EU members except the United Kingdom and the Czech Republic agreed to impose strict limits on the public debt, including automatic sanctions for countries that break the rules (Art. 3 TSCG ).

Response to the euro crisis

In the wake of the banking crisis and the triggering due to the bailouts, increased government debt, the idea of ​​a European fiscal union has been taken up again: common budget, common tax policy, common guarantee the sovereign debt of the countries of the euro zone. Some see this as the natural next step in European integration and / or a way to alleviate or solve the euro crisis, others recognize a national economic paradox. Some economists warn, pointing out that Europe can not be to pull through savings alone from the debt quagmire, as well as for growth and investment was necessary.

Brussels Convention

On 9 December 2011, the countries of the euro zone agreed to limits on the national debt and penalties for those countries that do not respect these limits. Even the non - euro countries except Britain agreed to participate. A change of the EU Treaty was rejected by British Prime Minister David Cameron. He had demanded in return, to exclude the City of London of future financial market regulations (such as the proposed EU financial transaction tax ). Because of the rejection of the contract modification by the British in December 2011, the planned collaboration had to be put on a separate contractual basis. The Czech Republic, which in contrast to the United Kingdom supported the contract modification has, therefore, rejected in January 2012 to join the new pact, which stands outside the EU legal framework, to be connected. The contract was signed by 25 States on March 2, 2012.

Contract

The SKS Treaty ( fiscal pact ) includes the following:

• The general government budget has to be balanced or in surplus (Article 3, paragraph 1, letter a). This is already as reached when the cyclically-adjusted annual balance excluding one -off and temporary measures (Article 3, paragraph 3, letter a) in its country-specific medium-term objective ( according to the revised Stability and Growth Pact ) is not higher than 0.5 % of nominal GDP (Article 3, paragraph 1, letter b); it can be up to 1.0% of GDP if the debt level significantly below 60% of GDP (Article 3, paragraph 1b and d SKSV ). However, this has only to be done immediately and well approximated, for it says in Article 3 paragraph 1b: " The Parties shall ensure rapid convergence towards their respective medium-term goal for sure," said the timeframe for this approximation of the European Commission " proposed taking into account the country-specific risks to the long -term sustainability '. From this " medium-term objective or the adjustment path leading to it " may the States may exceptionally be different if " exceptional circumstances" (Article 3, paragraph 1, letter c). As such, is considered " an unusual event outside the control of the party concerned escapes and has considerable effect on the state of public finances, or severe economic downturn in the sense of the revised Stability and Growth Pact, provided that the temporary departure ... not at risk the medium-term sustainability of public finances "(Article 3, paragraph 3, letter b).
• The new rules must be in the national constitution ( or equivalent level ) anchored ( Article 3 para 2 SKSV ). You must also include an automatic correction mechanism that is triggered in the event of a discrepancy. All signatory states recognize the jurisdiction of the European Court, which shall review the implementation of this rule at national level (Art. 8 SKSV ).
• The Member States undertake to reduce their spending and debt until the individual proposed by the EU Commission limits are reached (Art. 4 SKSV ).
• Member States that violate the rules, the European Commission and the European Council have to report, through the economic policies they intend to reduce their excessive deficit permanently. The proposed measures and the annual budgets of the EU Commission and the European Council monitors (Art. 5 SKSV ).
• The Member States must implement the planned issuance of new debt prior report (Art. 6 SKSV ).
• The Member States agree to an amendment of the European Stability Mechanism, which occurs also in force one year earlier.

Once a Member State is in danger of violating the deficit limit of three percent, occurred automatic consequences in force, unless a qualified majority of Member States of the euro area is opposed.

According to Article 8, paragraph 1 shall each euro country that does not introduce EU-wide debt brake at a national level, may be brought before the Court of Justice of the EU in Luxembourg. This action may be brought by any of the other countries either by itself or by prior finding of default by the European Commission. However, applicants must be the three States which at the time of publication of the Commission report the Presidency of the Council of the European Union according to the protocol on the signing of fiscal compact. The Court then decides binding, whether the State has introduced the debt brake effectively. Does not follow that state then the judgment, the imposition of financial sanctions in accordance with Article 8, paragraph 2 may be requested by the European Commission under Article 260 of the Treaty on the Functioning of the European Union established criteria the Court. This sanction may be a lump sum or a penalty payment and must not exceed 0.1 % of its gross domestic product. The money is in the planned European Stability Mechanism ( ESM) flow. This should, in turn, may only be taken by those countries in claim who is committed under the Fiscal Pact for braking of their debt.

At least twice a year there should be a euro summit. In addition, care should be taken that the fiscal pact does not undermine the common EU internal market. The contract for the euro zone comes into force as soon as it parliaments of twelve members have ratified ( Art.14 TSCG ). At the latest after five years should also be checked whether the new treaty could be integrated into the valid for all Treaty on European Union ( Art.16 TSCG ).

Entry into force

The fiscal pact entered into force on 1 January 2013. 23 States have ratified the Treaty to date: The euro countries Austria, Cyprus, Germany, Estonia, Greece, Spain, Finland, France, Ireland, Italy, Portugal, Slovenia and Slovakia, the non- euro countries Denmark and Romania, which have declared themselves to wanting III and IV bind the contract title. For Lithuania and Latvia only the governance rules ( Title V) apply.

Overall economic paradox

Because the level of state deficits, the company profits directly / indirectly influenced, deficit cuts have a negative effect on the earnings expectations and thus on the investments of entrepreneurs. One of declining economic performance but can only be counteracted either by means increased business investment, private or government deficit of foreign countries ( with unchanged saving rate ). ( The aggregate financing needs of companies is within an economy: saving of households Save Save the companies of the State = business investment government investment Current account balance )

Points due to falling spending and dependent declining demand, companies back their investments, the economy thus continues to cool off and there lead to lower government revenue, rising ultimately ( perhaps because of the more rigorous deficit reductions ) the national debt quotas to.

Tried a state even (old ) due liabilities (excluding net new debt ), it must generate a revenue surplus, which (because not redisplay ) the economic cash withdraws ( balance sheet contraction in loan repayment ) and thus the financing needs of the company increases (or from abroad ). Start now private households as well to increase their output waiver, this results in a further increase in the financing gap of the company, which in turn tend also to cut spending. This mutual savings paradox of sectors (businesses, households, government) provides ( when other countries will not increase its demand and it is hardly, if it is to save itself) dar. for a deflationary spiral, the classical condition

Evaluation in 2012

According to a briefing by the German government, it is in spite of the energetic saving programs not the problem countries in 2012 managed to avoid a further increase in its debt ratio. The reasons for this are given that the significant economic slowdown has zunichtegemacht a significant proportion of the budget savings, since the tax revenues worse than expected developed and additional government expenditure, notably because of rising unemployment have become necessary. At least since the Great Depression in the 1930s, it is no secret that the attempt of the deficit reduction during the economic slowdown phase only again creates budget deficits.

Evaluation in 2013

Budget deficits have been ( partially since 2009) reduced, with the exception of Germany and Portugal, debt ratios have increased and will increase further in 2014. Greece 2013 a de facto zero deficit or ( depending on the calculation ) even made ​​a surplus, the debt ratio in 2013 increased (2009: 129.7 % from austerity measures by the Troika ) from 156.9 (2012 ) to 175.7 %. The fact that the OECD is silent in her laudatory report on the successful consolidation of the Greek budget (2013 ), that the public debt ratio of Greece has increased ( in relation to declining GDP) since 2009 further enormous, is not surprising.

The Advisory Council on the Assessment of economic development indicates: "Analog shows that further consolidation is needed in many other countries, such as Belgium, France, the Netherlands and Portugal. The basic stance of fiscal policy in the euro area is therefore likely to remain restrictive in the forecast period and have a dampening effect on economic development. "

And as it did in 2012 is the Council of Experts of only short-term negative effects of austerity: "The short-term negative effects of austerity measures on domestic demand and employment are likely to be lower in the coming year 2014 as in 2013. " However, the Advisory Council has the same out that with no improvement in export performance of the German economy is expected in 2014, as in the potential consumer countries (already ) acts disinflation. Only superficially so appears the demand for wage cuts in Germany justified as unemployment and wage cuts, in turn, the domestic economy ( domestic demand ) weaken and the EU economies can not reduce spending at the same time now times while improving their current account (s ) (see also competition paradox or Beggar -thy- neighbor policy).