BRUSSELS: European Union leaders will discuss proposals for tighter euro zone integration on Dec. 8-9, with the aim of bringing deficits and debt much more strictly into check, a move that may give the European Central Bank room to step up purchases of sovereign bonds and reassure financial markets.
On Tuesday, the chairman of the EU summit, Herman Van Rompuy, delivered a report to EU leaders on what can be done to move towards an economic union to match the monetary union that already exists between the 17 euro zone countries.
Below are some of the key elements of the report, which was obtained by Reuters. The report sets out how many of the adjustments required in the euro zone can be achieved by making minor changes to the EU treaty, rather than a radical treaty change, which will take time and could be disruptive.
STRONGER BUDGETARY DISCIPLINE
The EU has already agreed on stronger budget rules, called the Stability and Growth Pact, which envisage more and swifter financial sanctions for breaking the rules. But more is needed to reassure investors about the soundness of euro zone public finances, the Van Rompuy report said, proposing the following measures:
RELATIVELY QUICK AND EASY CHANGES
They could be introduced through a revision of protocol 12 of the EU treaty and changes to secondary legislation. The changes would require a unanimous vote of EU leaders on a proposal from the European Commission, after consultation with the European Parliament and the European Central Bank.
There would be no national ratification, therefore the process could be relatively fast.euro zone countries would agree to reach and keep a balanced budget over the economic cycle. This would ensure that debts fall below the treaty ceiling of 60 percent of GDP.
The European Commission, the EU executive arm, would help set up a calendar for reaching the balanced budgets.euro zone states would also have to have balanced budget rules in national legislation, preferably in the constitution the European Court of Justice, the highest EU court, would control if the budget rule is introduced in national law.
MORE TIME-CONSUMING CHANGES
They could be introduced by amending Treaty Article 136 and/or revising protocol 14 on the Eurogroup. This would require ratifications in all EU countries a more lengthy process at risk of a national veto but would allow fundamental changes. reinforcing automatic sanctions for euro zone countries running budget deficits above the EU limit of 3 percent of GDP.
for euro zone countries which have deficits higher than the 3 percent limit, the European Commission and euro zone finance ministers could ask for changes in the draft budget before it is submitted to the national parliament if the draft is not in line with agreed plans.if a euro zone country receiving bailout loans persistently does not meet agreed conditions for the money, the Commission could get exceptional powers of ex-ante approval of all major economic reforms.
CLOSER ECONOMIC UNION, EURO ZONE BONDS
Euro zone countries could use the possibility of enhanced cooperation, provided by the current treaty, to take steps towards closer integration of labour markets, pension and social security system sustainability and pragmatic tax coordination.euro zone countries could open the possibility to move, in the long term, towards joint debt issuance or euro zone bonds. This would be a gradual and criteria-based process that could start with the pooling of some funding instruments.
It would entail more intrusive control of national budgets by the EU, be a powerful mechanism for strong budgetary discipline and would underline the irreversibility of the euro.
BOOSTING EXISTING CRISIS RESPONSE MECHANISMS
The report said that such longer-term reforms had to be accompanied by immediate action to address market tensions. Such immediate action should inReuters
EU leaders and the European Parliament should agree before March 2012 to give the European Commission more intrusive powers of budgetary control and linking bailout loans with very close monitoring of euro zone economies.rapid deployment of the leveraging options for the euro zone bailout fund, the European Financial Stability Facility (EFSF), under the partial insurance scheme for primary market bond buying and the co-investment scheme.the treaty on the permanent bailout fund, the European Stability Mechanism (ESM) should be ratified quickly, and should say that private bondholders would be involved in potential sovereign debt restructuring only in line with International Monetary Fund principles and practices.more ESM decisions should be taken by qualified majority rather than by unanimity the ESM should be able to directly recapitalise banks the ESM itself should have the necessary features of a credit institution the 500 billion euro limit on the combined lending capacity of the EFSF and the ESM should be open for review the IMF should get more money to deal with the euro zone crisis, as was done in 2009, in particular through bilateral loans.
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