01 Jul 1995

Towards a Credible Excessive Deficits Procedure

Daniel Gros

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In 1995, when this paper was written, Daniel Gros pointed out that the Excessive Deficits Procedure lacked a strong enforcement mechanism. In particular he noted that the normal enforcement mechanisms of the Treaty (i.e. recourse to the European Court of Justice) cannot be used to ensure that member states obey the prohibition of excessive deficits. Instead the entire excessive deficits procedure has been assigned to the ECOFIN Council, which (as he predicted correctly) has never been able to agree tough measures towards member countries that have clearly not followed its recommendations. Hence, Gros doubted that the prohibition of excessive deficits would be enforced effectively once EMU has started.

To strengthen the enforcement mechanism of the excessive deficits procedure, his paper contained the following concrete proposal:

"First, countries with an excessive deficit should be automatically required to sequester spending and increase taxes. Second, if they do not follow this last call to order, they should be relegated to an associated status in EMU. ECOFIN would have no discretion in this procedure and only the countries that are in EMU should be allowed to participate in these decisions."

Some elements of this proposal can clearly be seen in the tightening in the new governance rules which were adopted in 2010 and 2011.

The author, Daniel Gros, is the Director of CEPS.