Posted by Westmeath Fianna Fail
The following “jargon buster” aims to help you with some technical terms or acronyms you will read and hear about in connection with the Stability Treaty.
Balanced Budget Rule (sometimes called "Golden Rule") – this rule is set out in Article 3 of the Treaty and ensures that - balanced out in good times and bad taken together – your government doesn’t spend more than it can raise in taxes.
Enhanced co-operation – under the EU Treaties, a group of member states can voluntarily choose to co-operate more closely together on a specific matter, subject to certain conditions and safeguards.
ESM –The European Stability Mechanism is the new financial rescue fund which will eventually replace the EFSF (an earlier fund from which Ireland currently receives funding). The ESM is set up by an inter-governmental treaty that is expected to enter into force in July 2012.
The ESM and the Stability Treaty are both elements in the strategy to overcome the public debt crisis in the eurozone. They are linked as ESM funding will only be made available to countries which ratify the Stability Treaty.
Legislation to allow Ireland to ratify the ESM is to be considered by the Oireachtas before its planned entry into force in July 2012. The ESM Treaty will enter into force once it is ratified by countries who contribute 90% of the initial proposed funding (Ireland is to contribute just under 1.6% of ESM funding)
Euro Plus Pact – this is an agreement reached in Spring 2011 by the 17 member states of the euro area, joined by Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania. Under the Pact, these countries made specific commitments to foster competitiveness and employment, enhance the sustainability of public finances, reinforce financial stability and to discuss tax policy issues.
Excessive deficit - when a country has too large a gap between its income and its spending. Under existing EU rules (the Stability and Growth Pact, see below), where this emerges a country will enter an “excessive deficit procedure”. Recommendations are made as to how the excessive deficit can be remedied and there is also an ultimate possibility of sanctions. One major criticism of the Stability and Growth Pact has been that enforcement of these rules by the EU has been too weak. The Stability Treaty is designed to ensure a level-playing field by ensuring that all countries have mechanisms in their national law to correct such imbalances – Article 3(2). The Stability Treaty also introduces more effective monitoring at the EU level - Article 5.
Medium Term Objective (MTO) = target for the balanced budget rule as set out in the Treaty. Taking account of country-specific issues the Commission will bring forward a timeframe for countries to meet their targets
QMV – qualified majority voting is the way in which decisions are taken in most areas of EU policy (unanimity and simple majority are used to a lesser extent). Each member state has a number of votes weighted according to a scale which groups together Member States of similar population size. To be adopted, a proposal needs a certain majority of member states to vote for it.
Reverse QMV – reverse qualified majority voting means that a proposal is adopted unless a qualified majority of member states vote against it. There is an example under Article 7 of the Stability Treaty - countries who use the euro commit to support recommendations by the Commission under the excessive deficit procedure (see above) unless it is established that a qualified majority of those countries who use the euro are opposed.
“Six-Pack” – Much of what is contained in the Stability Treaty is already in EU law. One of the early steps taken by Ireland and its European partners in response to the crisis was to agree on a package of six pieces of legislation on economic governance. These measures strengthened the existing rules on how governments manage their debts and introduced a new system which will warn against any future economic shocks. They entered into effect on 13 December 2011 and are commonly known as the “six-pack”.
Stability and Growth Pact (SGP) – the Stability and Growth Pact is a set of rules on the coordination of economic policy first agreed in Dublin in 1996 to underpin the euro. It has been updated a number of times since then, most recently by the “six-pack” of legislation on economic governance (see above). The key criteria remain that all countries in the Eurozone should aim to:
keep their annual budget deficit below 3% of GDPkeep total public debt below 60% of GDP
The Stability Treaty builds further on these rules.
Stability Treaty – the short-hand title for the Treaty on Stability, Coordination and Growth in the Economic and Monetary Union” signed by the Taoiseach and 24 other Heads of State and Government in Brussels on 2 March 2012.
Structural balance– the structural balance is what the public finances would look like if you were to exclude variations resulting from a country’s economic cycle – that is if the ups and downs that inevitably occur from year to year are smoothed out.
“Two-Pack” – Following agreement on the “six-pack” legislation on economic governance (see above), two additional pieces of legislation were proposed to further strengthen monitoring and surveillance. The measures are still the subject of negotiations in Brussels.
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