Referendum 2012: EU Jargon GuideFriday 04 May 2012 19.04
Balanced budget rule
This means that countries’ budgets must be in surplus, balance or have only a small deficit
Enhanced co-operation: Under the EU treaties, a group of member states can choose to co-operate more closely together on a specific matter, subject to certain conditions and safeguards. This was an innovation put into the Nice Treaty in 2000.
With the EU increasing in size from 15 to 25 countries in 2004 it was felt that policy making would grind to a halt with so many member states and their competing agendas. In order to keep EU integration moving forward the new provision allowed a core group of member states to move ahead on a particular project, so long as it didn’t undermine the key pillars of the EU.
The euro and the Schengen free travel area are examples of enhanced co-operation.
The European Stability Mechanism is the new financial rescue fund set up to grant loans to eurozone countries, provide precautionary financial assistance, purchase sovereign bonds in the primary and secondary markets and provide loans to recapitalise banks.
It was set up by an intergovernmental treaty, originally signed in July 2011 but modified on February 2, 2012 to make it more effective and to bring it into force earlier (July 2012) than originally planned.
From March 1, 2013 any assistance from the ESM will be conditional on ratification of the Fiscal Compact Treaty
Euro Plus Pact
Agreed in Spring 2011 by the 17 member states of the eurozone - and joined by Poland, Bulgaria, Denmark, Lithuania, Lativa and Romania.
Under the Pact member states have made specific commitments to foster competitiveness and employment, enhance the sustainability of public finances, reinforce financial stability and undertake a structured discussion on tax policy
Excessive Deficit Procedure
The European Commission recommends to a country which had broken the 3% deficit rule how to get its house in order, and if those recommendations are repeatedly ignored the country faces fines.
Currently 23 out of 27 member states are subject to monitoring and recommendations under the Excessive Deficit Procedure because they’re in breach of the 3% deficit limit.
These refer to things like asset or property bubbles, and competitiveness.
Under the treaty a scoreboard and an indepth country analysis will ascertain whether or not asset bubbles or a lack of competitiveness are becoming a problem.
Medium Term Objective
This is the target for each member state to hit in order to bring its budget towards balance.
It was first enshrined in the Stability and Growth Pact (see below), later reinforced by the Six Pack.
It is a target figure for the structural deficit of each member state - ie: once public finances have been adjusted for the impact of the economic cycle.
The target takes into account the level of debt as well as the implicit liabilities associated with the ageing of the population
Qualified Majority Voting is the way in which decisions are taken in most areas of EU policy (unanimity and simple majority are used to a lesser extent). Each member state has a number of votes weighted according to a scale which groups together Member States of similar population size.
To be adopted at EU level, a proposal needs a certain majority of member states to vote for it
Reverse Qualified Majority voting means that a proposal is adopted unless a qualified majority of member states vote against it
The Stability and Growth Pact is a set of rules for co-ordinating the fiscal and economic policies of EU member states, and especially those in the euro area. It has two arms: a preventive arm and a dissuasive arm.
Under the preventive arm, member states must submit annual stability or convergence programmes showing how to achieve sound fiscal positions.
The Commission assesses these programmes and the Council (ie the member states) gives its opinion on them. The dissuasive arm of the Pact is known as the Excessive Deficit Procedure (see above).
If a country’s deficit goes above 3pc of GDP the Council issues recommendations to the country concerned to correct its deficit. If the country fails to act in compliance with this recommendation, it can eventually be brought to court and face sanctions.
This is five regulations and one directive applying to all 27 EU member states, but more specifically for the eurozone. It’s already been agreed by EU governments and came into force in December, 2011.
It provides for stricter enforcement of the Stability and Growth Pact rules (see below) on preventing deficits from getting out of control and on punishing countries which repeatedly ignore recommendations to get back to deficit guidelines.
Penalties for offenders kick in earlier, there is more surveillance to prevent macro-economic imbalances (see above).
Sanctions take place more quickly due to the innovation of Reverse QVM (see above).
The structural balance is the fiscal position that would prevail if movements in the economic cycle were excluded.
Unlike the headline deficit which is easy to measure, the structural deficit cannot be measured directly and must be estimated. But there are formulae that can be applied.
The European Commission estimates the structural balance/deficit for each member state using a harmonised approach. The structural deficit is not to be confused with the 3% budget deficit limit under the Maastricht Treaty, which is the “headline” deficit.
That remains the target of every fiscal consolidation programme under the stability and growth pact.
TFEU – or Lisbon Treaty – or EU Treaties
The fundamental law of the EU is set out in treaties. These treaties have developed over decades and were most recently amended by the Lisbon Treaty.
The Lisbon Treaty consisted of two sets of amendments to the existing EU treaties.
There currently, in fact, two treaties underpinning the EU: the Treaty on European Union (TEU), and the Treaty on the Functioning of the European Union (TFEU).
The fiscal compact treaty is not an EU treaty but an intergovernmental one. Member states are committed to folding into the main EU treaties within five years.