–Getting Timely Agreement On Proposals Is Key Challenge

By Emma Charlton

BRUSSELS (MNI) – While European policymakers are rushing to endorse
plans for increased economic governance, they’re somewhat more shy when
pressed on the details of the plans and when asked to specify what
they’re actually prepared to sign up for.

European Central Bank President Jean-Claude Trichet Thursday backed
a proposal for all European Union countries to submit their budget plans
and key indicators for European peer review before they are finalised
nationally, as part of an EU-wide bid to increase economic governance.

Policymakers hope these plans will shore up confidence in the
Eurozone and the whole European Union and relieve the downward pressure
on the euro being caused by market concerns about high debt and deficit
levels. European Council President Herman Van Rompuy is leading a task
force to outline what should be done.

The task force — which includes representatives from the finance
ministries of all 27 EU states, the ECB and the European Commission —
met for the second time on Monday and announced it had reached broad
agreement on a deal to increase surveillance across all of the European
Union’s 27 member states.

But no sooner had the announcement been made, politicians began
talking at cross purposes over what had actually been agreed.

Now policymakers face a double challenge of overcoming their
differences to forge an actual agreement and overcoming market
skepticism about how well they will be able to do this.

At a press conference following the European Central Bank’s June
monthly meeting on Thursday, Jean-Claude Trichet told reporters the ECB
strongly supports a “formidable” increase in economic governance,
rigorous application of the European Union budget rules, and the
instigation of a common timeline whereby European governments would
submit their budgets for peer review at the same time each year.

“I am, and we all are, supporting stronger governance at the level
of the 27 [EU countries] and the 16 [Eurozone countries],” Trichet said.

“We have to go up to all that the legal framework permits. It is
absolutely of the essence,” the ECB President said.

He said the central bank backs budget peer review plans, known as
the European semester proposal.

“In the fiscal area…we are very strongly in favour of the
European semester,” Trichet said, adding that he believed some countries
that had opposed the proposal initially were now in favour of the idea.

The European Commission – the EU’s executive arm – was the first to
propose the “European semester,” an idea which was quickly picked up by
Herman Van Rompuy’s task force and seemingly agreed upon on Monday
night.

“Everybody agreed…on ways and means to review the fiscal
situation of member states at an earlier stage,” Van Rompuy told
reporters after the latest meeting of his task force Monday.

“The main assumptions underlying the budgetary plans, like the
levels of growth or inflation, would be examined. So would the main
aggregates, like total revenues, total spending and deficit targets,” he
said.

“Since this would take place as early as the spring, there would
still be time to adjust the plans before the final budget is presented.
Moreover, a national parliament would be able to judge its governments’
budget plans knowing fully their credibility,” Van Rompuy concluded.

As soon as the words were out of his mouth, others rushed to give
their interpretation of the deal, with the UK delegation suggesting that
its budget plans will be available for review at the European level only
once they are publicly available.

“The budget will be presented to parliament first,” UK Financial
Secretary to the Treasury, Mark Hoban, said in a statement released
after Monday’s meeting.

“There is no question of anyone other than MPs seeing it first.
Once the chancellor has presented it to parliament, it is of course
publicly available,” he said.

France was also quick to mark its territory.

The agreement is “not about submitting the French budget to the
European Commission before the (national) parliament,” French Finance
Minister Christine Lagarde told reporters as she left a meeting of
European Union finance ministers on Tuesday.

European Commission President Jose Manuel Barroso had another point
of view, suggesting Wednesday that the plans to increase economic
governance were almost at the legislative stage.

“There’s much more agreement over those basic ideas…there seems
to be more readiness for us to focus on specific legislative proposals,”
he told reporters in Brussels.

He dismissed the idea that closer economic governance could be
restricted to the 16-countries that share the euro, with the remaining
11 countries following separate guidelines.

It is “very important that the general framework be the same for
the Eurozone as for the non-Eurozone,” Barroso said, adding that
collective decisions needed to be taken because “the impact of one
country, in the Eurozone or outside the Eurozone, is felt by all…We
are living in the same union.”

As well as the fine details, Europe’s big governments are also at
odds about whether treaty changes are necessary, with France and the UK
arguing that the lengthy process of Treaty change should only be
considered as a last resort.

In contrast, German Chancellor Angela Merkel sees a need for
changes.

“I am of the opinion that we also need changes to the treaties,”
Merkel told reporters at a press conference in Berlin on Thursday.

She said she wanted to see stronger guidelines set out in the
treaties for countries that don’t stick to the EU’s budget rules.

Van Rompuy — balanced carefully on the fence — said he hasn’t
ruled out a treaty change but is trying to do as much as possible within
the existing rules.

The only thing that can be agreed on, it seems, is the end point.

“We need more sanctions…it is absolutely of the essence. All what
we are experiencing is a wake up call,” Trichet told reporters on
Thursday.

Exactly how to get there remains a mystery to all — including, it
seems, to Europe’s politicians.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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