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Austerity versus growth: a stark choice or a false dilemma?

MEPs will be weighing up the benefits of growth versus austerity when they vote on 13 June on legislation that will give more power to the Commission to police national budgets. As the political climate in Europe changes, many have questioned the wisdom of pushing forward with austerity at the expense of growth. Yet there is broad agreement that public finances have to be consolidated. It remains to be seen whether MEPs agree the latest budget proposals fit in with the growth agenda.

When the economic and monetary affairs voted on the proposals, it was very close as many MEPs increasingly feel that the EU should focus more on growth. Yet a slim majority in the committee was in favour of putting them to a plenary vote anyway to gauge the support of all MEPs before entering into negotiations with the Council.

Tackling the European debt crisis

The Parliament adopted in September 2011 the six-pack, a legislation package that introduces automatic sanctions for eurozone countries that breach the deficit (3%) and debt (60%) ceilings that have been agreed upon. The six-pack also focuses on macroeconomic imbalances.  If member states do not take steps to reduce imbalances such as export surpluses, deficits and bubbles, they are also at risk of being hit with sanctions.

The two-pack package, to be debated on 12 June and voted on the following day, builds on the six-pack:

  •  It gives the Commission further powers to monitor the budget plans of eurozone countries  even before budgets are adopted by national parliaments. The Commission can demand a revised draft budget, if it does not conform to targets. The MEP responsible for steering this proposal through Parliament is Portuguese Social-Democrat Elisa Ferreira.

  •  It subjects member states experiencing serious financial difficulties or receiving financial aid (e.g. Greece or Portugal) to stricter and more invasive surveillance of its financial and economic situation. The MEP responsible for steering this proposal through Parliament is French Christian-Democrat Jean-Paul Gauzès.

Ferreira report

In her report on the monitoring of budget plans, Ms Ferreira stressed the need for a growth agenda. While making recommendations on the budget of member states, the Commission should ensure that budget cuts do not kill off investments that could boost growth or harm investment into health care or education.

She also remarked that member state debt above the 60% mark should be transferred to the European Redemption Fund, making it a joint liability of all member states. This would relieve market pressure on the countries that are indebted the most and help them to grow.

Gauzès report

Mr Gauzès discussed reversed qualified majority voting introduced by the Parliament for Commission decisions related to member states facing serious difficulties in his report on surveillance of the financial situation. He also talked about bankruptcy protection for member states. First by freezing interest rates on member state debt, then by presenting a debt settlement plan to creditors, who could then decide to take part in the settlement.

REF. : 20120608STO46473