National budgets and European surveillance

Since 2013, the euro area member states have to submit their budgetary plan for the following year to the Commission by 15 October. This exercise fuels the image of a Europe narrowing countries’ fiscal sovereignty; and this, even though the Commission does not have the right to veto or even to directly modify a national budget. This assessment of national budgets on Brussels’s part is attracting a lot of attention this year in particular, because the exercise is associated with the spectre of the potential levying of financial sanctions against France for failure to correct its excessive deficit in 2015.

The debate raises the issue of the degree of flexibility that the Commission should show in implementing the Stability and Growth Pact. In order to clarify the debate, it is worthwhile shedding light on the rules and procedures that govern fiscal surveillance in the EU and understanding the extent of the European authorities’ powers and action in the budgetary sphere. To achieve this end, this policy paper presents four points:

1. A review of the fiscal rules with which the member states are pledged to comply and which extend well beyond the rule setting the public deficit at 3% of GDP;

2. A presentation of the fiscal surveillance procedure that unfolds throughout the year;

3. A clarification of the constraints enforced on member states which fail to comply with the fiscal rules as well as of the flexibility clauses foreseen in the Stability and Growth Pact;

4. An overview of member states’ budgetary conduct since the adoption of the Stability Pact and of their current situation.

Sofia Fernandes is Senior Research Fellow at the Jacques Delors Institute Paris, she formally worked for the Portuguese Institute for Quality – Ministry of Economy.

Image: CC Pedro Ribeiro Simões, source: flickr.com