EU leaders adopt landmark reforms on economic governance

11:28, October 29, 2010      

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European Union (EU) leaders adopted landmark reforms on Thursday to enhance economic governance in the 27-nation bloc with tougher fiscal discipline and closer policy coordination.

"Today we took important decisions to strengthen the euro zone. We have endorsed the final report of the task force. We have also found an agreement about the procedure to decide on a crisis mechanism for the euro zone," EU President Herman Van Rompuy told reporters in the early hours of Friday after a meeting with EU leaders.

Following the outbreak of the Greek debt crisis, the EU set up a task force led by Van Rompuy himself to make proposals on necessary reforms to improve economic governance in the EU and prevent a repeat of the crisis. The task force finished its final report last week.

Van Rompuy said that based on the adopted plan, the EU would create a new macro-economic surveillance mechanism and make sanctions against deficit sinners earlier and easier.

In order to increase effectiveness of EU fiscal rules, a reverse majority rule would be introduced to the adoption of sanctions, which means any recommendation on sanctions made by the European Commission would come into effect unless a qualified majority of EU member states votes against.

However, as a compromise, the decision to punish rule breakers would remain virtually in the political hands of EU governments. When a member state is found in breach of EU budgetary rules in the future, it will be first given six months to take corrective actions. Only when EU governments find the member state has breached EU budgetary rules and defies order for it to correct, the commission may propose sanctions.

The reform plan also calls for the criterion of public debt to be better reflected in the budgetary surveillance mechanism by paying greater attention to the debt levels of member states, rather than focusing solely on deficits.

In terms of macro-economic surveillance, an annual assessment of the risk of macroeconomic imbalances and vulnerabilities would be undertaken, using an alert mechanism based on a limited number of indicators.

In case of actual or potential excessive imbalances, such as real estate bubble, the commission should conduct an in-depth analysis. In particularly serious cases, the country would be ordered to take a set of policy measures to address the problem.

The EU leaders also agreed to make a limited change to the bloc's main treaty to allow for the creation of a permanent crisis resolution mechanism in the euro zone, the most contentious issue at the summit.

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