Danuta Hubner in the European Parliament

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Professor Danuta Hübner’s article published in Polska the Times, 13th January 2011, January 13, 2012

Warsaw, Poland

Fiscal stability union and Polish interest

In the coming months European Union will be a subject of some major changes - the biggest changes since the Treaty of Lisbon in 2009. Discussion about a new intergovernmental agreement between the EU Member States has already begun. It aims to implement findings of the December summit in 2011. Negotiations will be continued for several weeks. On 30 January will take place an extraordinary EU summit devoted to the crisis in the euro zone. Signing the agreement may occur during the European Council meeting in March this year.

The Danish Presidency has announced that it intends firmly to join the work upon a new fiscal pact and we are starting to know more and more about its shape. According to the first announcement, its main purpose is to increase fiscal discipline in the euro zone countries. They will be obliged to enter into its constitution a new expenditure rule, which assumes, that the annual structural deficit will not exceed 0.5 percent of nominal GDP. The EU Court of Justice will keep guard on these regulations. Countries outside the euro zone, which declare approval for a new intergovernmental agreement, will also have to respect the principles from the date of entry into the euro zone, unless they decide to do so earlier.

Another element that will be discussed soon is a matter of taxes from financial transactions. Its idea was introduced by the European Commission. In early January. Angela Merkel and Nicolas Sarkozy supported this solution in opposition to David Cameron. German Chancellor and French President, however, considered that it would be worth to bring it up even only in the euro zone, because thanks to it it would be easier to resolve the situation in the countries of monetary union. This so-called “Tobin tax” (named after the economist James Tobin who first proposed its establishment) would help to reduce speculation and excesses in the market, which in great measure, caused the financial crisis in 2008.

A brief resumé of recent days events in the European Union shows the scale of the challenges that are waiting for the Community in the coming months. An enormous amount of information and noise often mutually exclusive comments, are making it easy to lose the main direction of change in Europe. That’s why it is worth to put opinions in the most sensitive and most strongly debated issues in order. First of all, the most urgent matter: the sovereignty of Member States.

There is no basis to argue that the new fiscal agreement will lead to a kind of transfer of sovereignty from national capitals to Brussels. It does not violate the role of national parliaments in the budgetary decision-making process. It should be rather quickly ratified by the Member States with respect for parliamentary procedures. It will enter into force after ratification by at least nine members of the euro zone. It is not a new procedure. It was adopted for the implementation of the regulation establishing the European Stability Mechanism.

During the debate about the December summit some significant problem appeared. It relates to involving in this agreement states that are not members of the euro zone because it regulates the issues concerning precisely to the euro zone. The two-speed Europe issue has been arousing emotions for a long time. One solution was the approach adopted in the context of Euro Plus Pact. So in that case, the proposal was to open an agreement for the EU Member States that are not members of the euro zone. Adoption of this possibility in principle by all countries except the UK reduces the risk of a two-speed European integration.

Nevertheless, the case is very complex. Deepening the integration within the euro zone is a necessity and the only way to avoid the division of the Union is the involvement of European institutions in solutions adopted in the new agreement, so ensuring maximum Community approach. Therefore, for Poland major challenge in the context of negotiations for a new intergovernmental agreement is to provide a strong role for the European Commission and the European Union in the new fiscal stability system. Also ensuring open character to further enlargement of the euro zone makes the risk of fragmentation of the European Union smaller. It is also obvious that it is in our interest to create strong and effective mechanisms for fiscal discipline in individual Member States’ systems. Joining the new agreement for states that are outside the euro zone and thereby reducing the risk of a two-speed Union is a very important factor in building markets’ confidence.

The induction of the agreement and its regulations as soon as possible to the Treaties is a very important matter that Poland should support. The agreement is to create conditions for coordination of reforms undertaken by Member States, as well as for undertaking enhanced cooperation in matters that are necessary for the effective functioning of the euro zone.

The aim of this new agreement is, however, the creation of institutional conditions for effective crisis management. Not surprisingly, that the agreement is dominated by the regulations strengthening fiscal discipline by introducing into national legal solutions that are today among the instruments operating at European level. Also the concept of greater intergovernmental cooperation based on similar national budget balance rules amenable to the jurisdiction of the European Court of Justice was adopted. The agreement confirms also the solutions already adopted in the legislative package on economic governance and in some respects goes forward - in the direction of solutions based on European level.

The agreement introduces also elements of a certain flexibility regarding to compliance with the rules of budgetary discipline in special situations defined as situations that are independent from government or as a particularly dramatic collapse in economic activity. Thus weakens concerns of all those who fear about too restrictive rules, which would leave no space for growth-enhancing government actions.

The fact that this intergovernmental agreement is not covered by the framework of the Treaties, causes anxiety in the European Parliament. His role at preparation level of the agreement is very limited and comes only to the MEPs participation as observers. The same system provides the appropriate meetings of national parliaments’ and European Parliament’s representatives to discuss solutions undertaken by governments in the area of economic and budgetary policy.

Regarding to institutional arrangements, the proposals contained in the draft agreement are rather modest. The agreement does not provide the establishment of new institutions. In principle, it limits to a few requirements related to the role of the euro zone summits. Although that proposed agreement contains solutions partly present in six-pack regulations, undoubtedly it creates a new situation regarding to decisions about the fiscal union, not only the union of fiscal sustainability that are, in my opinion, inevitable.

So this is not an agreement that will solve the current problems, but it provides further arguments in favor of increased involvement of the European Central Bank as ‘last chance lender’ directly or indirectly by supporting another institution that could fulfill such function. It is also an agreement that could make further steps toward such forms of Eurobonds easier. These proposed flexibility in the fiscal discipline area also creates a more robust basis for the anti-crisis package of policies stimulating growth inclusion. This agreement, if trigger sufficiently strong political will, is a great opportunity to leave the path of overcoming the crisis based on the assumption that there were public finances to have been its sources. The public finances crises is rather a result of anti-crisis decisions.

Every step taken jointly by Member States in the context of the crisis left in the past two years a kind of insufficiency. What is more, the confidence of financial markets is still a moving target. The agreement may bring us closer to this goal, if only it creates relevant space for a reasonable proportion between stabilization and growth policies. Financial markets are looking more carefully at the ability of Europe to growth, increasing its competitiveness and creating new workplaces.

Prof. Danuta Hübner’s article published in Polska the Times, 13.01.2012

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