MEPs push for redemption fund to pool eurozone debt

The so-called 'two-pack' of economic governance rules would give the European Union the tools it needs to supervise national budgets while balancing fiscal consolidation with measures to boost growth, members of the European Parliament said after voting by large majorities in favour of the proposals.

As well as reinforcing EU oversight of budgets, the draft legislation – based on European Commission ideas but amended by MEPs – includes the creation of a European redemption fund to mutualise eurozone countries' debt above 60 per cent of gross domestic product, an amount that currently stand at about €2.3 trillion. This partial pooling of debt, repayable over 25 years, would allow struggling member states to borrow at lower interest rates and give them space to introduce structural reforms.

In addition, the plans would require the commission to present a roadmap for the introduction of full Eurobonds within a month of the two-pack entering force, and to outline ideas for a growth instrument through which €100bn would be invested in infrastructure each year for a decade.

"The two-pack provides the EU with all the necessary tools to supervise the budgetary discipline of the member states, ensuring a steady stream of information from the member states to the commission," said European People's Party MEP Jean-Paul Gauzès. The EU's "fundamental handicap" during the crisis was that it always arrived "after the battle", he said. "The lack of reliable information is the greatest source of problems in the markets. If this safeguard mechanism had existed at the time Greece's financial difficulties appeared, we would have gained a lot of time and saved a lot of money."

Under the proposls backed by MEPs, governments would have to consult the commission before adopting major economic reforms, and the EU executive would be given greater authority to oversee individual national budgets. However, these powers would be monitored closely by member states and renewed every three years, with the parliament or member states in the Council of the EU able to revoke them.

Meanwhile the text insists that the commission's fiscal assessments should not impose budget cuts to the extent that they hamper growth or affect investment in education and health, and formally sets out the rights of social partners and civil society to express their views on budget recommendations. According to another new rule, the commission could put a country on the brink of bankruptcy under legal protection – meaning that a default could not be declared, creditors would have to identify themselves to the EU executive, and loan interest rates frozen.

The two-pack is designed to complement the six-pack of economic governance regulations that were implemented last December. Both parts were passed with large majorities during today's plenary session in Strasbourg, as the parliament set out its opening position ahead of negotiations with the council.

Alliance of Liberals and Democrats leader Guy Verhofstadt said that by proposing the establishment of a redemption fund, parliament had "succeeded in formally putting on the negotiating table a systemic and structural answer to the crisis representing a real firewall to protect the eurozone". Referring to the other measures included in the two-pack, his colleague Carl Haglund added: "We finally complemented the new macroeconomic surveillance, adopted under the six-pack, by providing the EU with the necessary tools to preventively intervene in a struggling member state before it could become contagious affecting the entire eurozone's stability."

The proposals represented a "clear and constructive alternative to the failed one-sided austerity, which has characterised the response to the economic crisis so far", said Green MEP Sven Giegold. "It has been obvious for some time that the narrow-minded preoccupation with austerity is failing and exacerbating economic and social hardship across the EU. Today MEPs have voted to counter-balance fiscal consolidation with measures aimed at stimulating economic recovery in crisis countries."

But there was dissent from left-wing MEPs, with European United Left/Nordic Green Left leader Gabi Zimmer branding a fiscal union based on the two-pack as a "declaration of bankruptcy of the European idea".

Earlier, commission President José Manuel Barroso called for the "swift adoption" of the two-pack. Speaking in the parliament this morning, he said the legislation was an important step towards the coordination of fiscal policies, laying the ground for further integration such as through the creation of a banking union.