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EU fiscal pact nears approval

May 24, 2012
From wire reports

RIGA - The Saeima Foreign Affairs Committee on May 23 approved the European Union’s fiscal discipline treaty in the second reading, highlighting that the treaty does not go against supporting economic growth, reports LETA. Hedging its bets, the Committee added: “and Latvia will lose nothing, even if it fails.”

“Even if the treaty falls apart in two or three years, we will lose nothing. If we want to be part of the euro area, the treaty’s ratification is an important step,” Saeima Foreign Affairs Committee Chairman Ojars Kalnins (Unity) said during the session, adding that no one knows how the situation will look in Europe in several years.

Harmony Center member Sergejs Mirskis emphasized the importance and seriousness of the vote and said that, “in two, three or five years, we will remember our votes today.” Mirskis claimed that right-wing politicians and their ideas are beginning to lose their positions, as indicated by the recent presidential elections in France, won by Socialist Francois Hollande, and the expected defeat of right-wing parties in Germany.

Commenting on Valdis Zatlers’ (Reform Party) statements that it is necessary to act farsightedly and support the treaty’s ratification, Mirskis remarked that “due to farsighted development, Latvia lost 20 percent of its residents, who found jobs abroad.”
Mirskis and his party colleagues did not support the treaty.

Hurdles remain
The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union is scheduled to be reviewed in the second reading in Saeima on May 31. Passage of the Treaty requires two-thirds of the MPs votes.
The Saeima on May 17 already approved, in principle, the fiscal discipline treaty in the first reading, in a vote of 68 Saeima members - the coalition and Greens/Farmers Union (ZZS) members - for the treaty, while 26 Harmony Center members voted against it.

According to the treaty, EU member states agree to strengthen the economic pillar of the Economic and Monetary Union by adopting a set of rules intended to foster budgetary discipline through a fiscal compact, to strengthen the coordination of economic policies and to improve the governance of the euro area, thereby supporting the achievement of the European Union’s objectives for sustainable growth, employment, competitiveness and social cohesion.
The treaty envisages several important rules.

The budgetary position of the general government must be balanced or in surplus. This rule will be deemed to be respected if the annual structural balance of the general government is at its country-specific medium-term objective, as defined in the revised Stability and Growth Pact, with a lower limit of a structural deficit of 0.5 percent of GDP.
The Contracting Parties - Treaty participants - will ensure rapid convergence towards their respective medium-term objective. The time frame for such convergence will be proposed by the European Commission, taking into consideration country-specific sustainability risks.

Where the ratio of government debt-to-GDP is significantly below 60 percent, and where risks in terms of long-term sustainability of public finances are low, the lower limit of the medium-term objective can reach a structural deficit of at most 1.0 percent of GDP.

The previously mentioned rules will take effect in the national law of the Contracting Parties at the latest one year after the entry into force of the treaty through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.
When the ratio of their general government debt-to-GDP exceeds 60 percent of GDP, the Contracting Parties will reduce it at an average rate of one twentieth per year as a benchmark.

The Contracting Parties subject to an excessive deficit procedure under EU treaties will put in place a budgetary and economic partnership program, including a detailed description of the structural reforms which must be put in place and implemented to ensure an effective and durable correction of their excessive deficits.
With a view to better coordinating the planning of their national debt issuance, the Contracting Parties will report, ex-ante, on their public debt issuance plans to the European Commission and to the Council.

Key role for ZZS
The Greens/Farmers Union, whose support for the treaty was crucial for approval, voted for the treaty “in advance,” since the EU multi-annual budget for 2014-2020 will become clear only in December, Greens/Farmers Saeima Group leader Augusts Brigmanis said.
On Feb. 29, Prime Minister Valdis Dombrovskis (Unity) and Brigmanis signed an agreement on cooperation to fulfill Latvia’s national interests in the EU. The Greens/Farmers promised to support the ratification of the bloc’s new fiscal treaty in Saeima. Dombrovskis, in turn, resolved to insist on considerable increases in direct payments to Latvian farmers and cohesion funding for Latvia during the EU budget talks.

“On the one hand, we have joined the EU and its rules are important for us, but on the other hand, the bloc’s reluctance to provide proper support to Latvian farmers is highly negative,” explained Brigmanis.
Brigmanis pointed out that the Greens/Farmers will consider further action when Saeima votes on the treaty in the second reading, and several Greens/Farmers members said last week that review of the bill in the second reading will not be as easy as in the first.
Expected further actions include the Greens/Farmers wanting the Cabinet to approve a loan program for agricultural land purchases.

Meanwhile, Harmony Center members who did not vote on the treaty said, jokingly, behind the scenes that the party has done ZZS a good turn by not supporting the treaty, allowing the Greens/Farmers to request and receive this support.
Though Brigmanis allows for the possibility that the Greens/Farmers could support the government during the upcoming vote, he added that the party’s support will depend on next week’s talks with Dombrovskis and approval of the agricultural land purchase loan program.

On Jan. 31, 25 EU member states agreed on the Treaty. The Czech Republic and Great Britain will not take part in the agreement.
 

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