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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
The Commission's initiative for growth, governance and stability
Brussels, 23 November 2011
Thank you President.
As outlined by the President, the current situation requires extraordinary and decisive policy action. To restore growth and safeguard the European integration project action is needed on broad front. The three initiatives the Commission has adopted ait at going that.
The Annual Growth Survey spells out our view of the policy priorities in the coming 12 months to restore macro-financial stability and rekindle growth. Two proposals for new regulations will strengthen fiscal surveillance in the euro area. The feasibility study on stability bonds examines the potential benefits for financial stability of jointly issues bonds and the precondition for their issuance.
As President Barroso already explained the Annual Growth Survey, I will focus on proposals based on article 136 and on the Green Paper on Stability Bonds.
The two regulations based on article 136 for the euro area propose a major step forward in euro area integration. They build on the six pack, complete the European Semester with rules for the second part of the year and establish a link between intergovernmental financial assistance and treaty based surveillance.
The first regulation proposes the introduction of structural balanced budget rules national legislation, preferably at constitutional level. It also requires independent forecasts to be used as the basis of budgetary plans and draft budgets.
But most importantly, it proposes tight monitoring of national budgets. We propose harmonised budgetary timelines with draft budget laws to be published and submitted to the Commission by 15 October.
The Commission then assesses draft budgets against Country Specific Recommendations under the European Semester, and against possible Excessive Deficit Procedure (EDP) recommendations. Should the draft clearly not be in line with recommendations, Commission can ask for new draft. Otherwise, the Commission issues an opinion, if necessary. The Commission would be ready to present its opinion in national Parliament, if requested.
When a Member State is in EDP, the Commission can issue recommendations for additional measures. Again, we are ready to address the national Parliament. Also, under EDP, a Member State becomes subject to increased requirements for reporting in terms of frequency and depth.
The other regulation specifies the modalities and requirements for enhanced monitoring of MS receiving financial assistance or suffering from risks to its financial stability.
It codifies the current practice of negotiating, monitoring and surveillance of adjustment programmes for countries receiving financial assistance.
In addition, it allows enhanced surveillance of a country that is considered to be at risk to financial stability, even without a programme.
Furthermore, enhanced surveillance would be continued until 75% of loans received as financial assistance under a programme are paid back.
Finally, it suggests that the Commission the right to propose to the Council to recommend a MS to seek financial assistance. The proposal would be based on Commission's analysis in liaison with ECB.
Actually, e xperience shows that MS want to avoid a programme until the last moment. This has caused situation to worsen significantly in the meanwhile, with increased cost to others and with increased financing needs. It is clear evidence of strong conditionality in the programme preventing the risk of moral hazard. And there are never volunteers for a programme…
The fragmented European sovereign bond market is under great stress. Investors require substantial risk premia on the sovereign bonds of some euro area Member States.
This situation has revived interest in jointly issued Euro Area bonds to create a large, liquid bond market similar to that one in the US.
As a part of the deal on the "six-pack" between the European Parliament and the Council, the Commission expressed its readiness to produce an analysis of eurobonds. The Green Paper now provides such an analysis. The two key findings are:
1) Yes, jointly issued stability bonds would likely produce substantial benefits in terms of (1) reducing and stabilising MS borrowing costs, (2) better shock resilience of the financial sector and (3) improved market efficiency over time.
2) But as common bonds would reduce market discipline, their introduction would only be meaningful on the condition that euro area economic governance were to be substantially further strengthened.
The " Six pack" is already a big step in this direction, and today’s proposals represent a further step. But we would have to go beyond these reforms to facilitate a safe introduction of the stability bonds.
The Green Paper distinguishes between three basic approaches:
A full replacement of national bonds by common bonds with joint and several guarantees
A partial replacement of national bonds by common bonds with joint and several guarantees (the so-called blue bond – red bond structure), and
A partial replacement of national bonds by common bonds with several (but not joint) guarantees.
J oint-and-several guarantee means that a creditor can turn to each guarantor for the whole amount, while a several guarantee means that each guarantor only responsible for a pro-rata amount.
The approached based on joint and several guarantees would give the greatest benefits, but would also require the most far-reaching reforms of governance to ensure that fiscal prudence prevails.
These two first approaches would also most probably require amendment to the Treaty. This could require considerable time.
Thorough political discussion will be needed. Therefore, we now launch a wide consultation, and only after that take stock and decide on the most appropriate way forward.
Last but not least, I want to say the following. There is no single "silver bullet" that will get us out of the crisis. Instead, we need to work on all fronts. The decisions of the Eurozone Summit of 26-27 October do precisely that, and they are being implemented.
Today's proposals build on the decisions of the Eurozone Summit, and they provide a balanced but determined roadmap for substantially reinforced economic governance, accompanied by options for stability bonds.
O n the broader discussion on economic governance, I share the President's view that the Commission has a particular vocation: the vocation of protecting the interests of all Member States and its citizens; of preserving the Community "acquis", in particular the Single Market; and of making sure that changes in economic governance are done – as President Barroso underlined – in a transparent way, in a democratic way, in the Community way.