Summary
The nine new Member States cited for excessive deficits bring the total to 20, three quarters of the entire EU membership. The EU Treaty requires the Commission to make these pronouncements, but this is only the start of a long process. Also, with the final decision on action, if any, up to the Member States, it is hard to believe a majority will be found to vote against themselves.
Analysis
The EU’s decision to cite nine more Member States for breaching the 3% budget deficit brings the total so designated this year to 20 countries out of the EU’s total 27 country membership. The EU’s “excessive deficit procedure (EDP)”, part of the governing Treaty as well as the Stability and Growth Pact, requires the European Commission to prepare a report whenever the actual or planned deficit of a Member State exceeds the 3% limit, and the Commission finds the deficit is not “exceptional and temporary.”
A year ago only two Member States – Hungary and the UK – were subject to the EDP. Clearly the global recession is the root cause of this massive increase in numbers, as the Commission acknowledged in its press release.
The Commission’s decision has no real or immediate force, other than “naming and shaming” the culprit nations. Here’s what’s next: The Commission EDP report (1) goes to the Economic and Financial Committee, which is composed of officials from all 27 Member States. That committee’s opinion (2) goes back to the Commission, which then decides whether (3) to recommend to the Economic and Financial Council (composed of all 27 Member State Finance Ministers) that the Council determine that an excessive deficit exists and then set a deadline to end it. The Council (4) makes the final decision. There are no time lines or deadlines for this process.
So whether the EU is actually and eventually to do anything not only could take a long time but in the end depends next on the Member State governments themselves. With three quarters of the Member States currently on the Commission’s excessive deficit list, it would seem highly unlikely a majority of Member States would vote to take action against themselves, especially in current and foreseeable economic circumstances.
At this point this exercise is clearly more form than substance.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
