BRUSSELS Feb 28 Germany and Finland say changes
in the way the European Commission assesses an EU member's
adherence to budget rules could weaken the bloc's pact on fiscal
discipline, a document showed on Friday.
The 8-page document, obtained by Reuters, also called for
independent monitoring of the EU executive's decisions.
The paper, authored by Germany but also endorsed by Finland,
said the way the Commission now reaches its verdicts could
weaken EU budget rules, known as the Stability and Growth Pact.
"The recent methodological changes imply the risk of
watering down the newly strengthened Stability and Growth Pact
at its implementation stage," the document said.
European Union countries sharpened their common budget rules
in 2012 to avoid a repeat of the sovereign debt crisis, caused
by excessive government borrowing.
The rules say that if a country runs a budget deficit higher
than 3 percent of GDP, it is given a deadline by the European
Commission and EU finance ministers to return to compliance.
Each year the Commission assesses if the rule-breaker is on
track and whether EU ministers should let the country pass or
not. If the member state slips for reasons beyond its control,
the Commission and EU finance ministers can give it more time.
If it has no such excuse, it can eventually be fined.
But it all depends on the Commission's view of what is and
is not within the government's control and on estimates of what
effects various fiscal measures will have, the paper said.
LACK OF TRANSPARENCY?
Because the Commission has shifted its focus to fiscal
measures from actual outcomes, the consequences of missing
targets have shifted from the individual government more to the
whole euro zone, the document said.
It said the new methodology was not transparent because it
made it impossible for anyone except the Commission to assess
whether a country had met the requests of EU finance ministers.
Finally, the new methodology created strong incentives for
governments to overestimate revenues from discretionary tax
measures, a problem made worse by the fact that estimates of
such revenues were unreliable or could not be verified.
The paper cited an assessment last year by the Commission as
to whether Belgium, France, Spain, the Netherlands and Slovenia
had taken the promised action to meet budget targets.
Even though France and Spain missed most of the targets set
by EU finance ministers according to five criteria, the
Commission still said they had taken effective action and gave
them another two years to cut deficits below 3 percent of GDP.
Berlin and Helsinki said the methodology should be refocused
on the actual structural budget balance and that the role of
discretionary measures should be limited.
It must be possible to verify the assessment, which could be
a job for an independent body, the paper said.
"To ensure data quality and full transparency of the
Commission's assessment, the Commission proposals could be
monitored by a separate pair of eyes while ensuring that all
quantitative results can be fully replicated by outsiders.
"In this process, there could possibly be a role for the
independent Chief Economic Analyst and/or national fiscal
councils," the paper said.
European Commission spokesman Simon O'Connor said the
methodology of the Commission's calculations was available on
the internet and the EU executive was talking to EU governments
to explain it further so that they can replicate the results.
The methodology changes had been in use for more than a year
now and were a refinement to improve the assessment, he said.
"We believe that it allows for a more sophisticated and also
fairer evaluation of member states' efforts to restore the
sustainability of public finances," O'Connor said.