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The EC is not strict enough in implementing the Excessive Deficit Procedure – designed to keep EU public finances in order - according to a new report from the European Court of Auditors.

The auditors warn that the Commission does not go far enough in the crucial area of monitoring structural reform: its focus is on the legal aspects of the procedure rather than the actual reforms. The auditors did find very positive signs in the Commission’s efforts to adapt and rationalise the EDP, but they conclude that the Commission is not effective enough in obtaining reliable data from the Member States and is not applying the procedure in a consistent manner. 

EU countries have agreed that they should limit their government borrowing each year to 3 % of GDP and their total government debt to 60 % of GDP. The Excessive Deficit Procedure (EDP) is a step-by-step procedure for correcting debt levels which have become too high. The auditors examined the Commission’s implementation of the EDP between 2008 and 2015, looking at six Member States: Cyprus, the Czech Republic, France, Germany, Italy and Malta.

They found that, although detailed procedures and guidelines existed for most areas, there had been problems with the EDP’s implementation. The Commission had not made full use of its powers to enforce the requirement to provide comprehensive data and to enforce compliance with recommendations for corrective action. It had also failed to give adequate feedback on Member States’ reports, with too few resources devoted to analysis, and poor record-keeping.

Despite improvements in recent years, say the auditors, there is still too little information openly available about the Commission’s data assumptions and parameters and its understanding of key concepts. In addition, even where the Commission has set clear internal rules, it may decide to depart from the established procedure, which raises questions about the overall reliability of its assessments.

“The Commission plays a vital role in ensuring that the Excessive Deficit Procedure functions as it should”, said Milan Martin Cvikl, the member of the Court of Auditors responsible for the report. “But it must be more strict. It is not sufficiently aware of what is happening on the ground and it is not applying the rules consistently.” 

The auditors did find very positive signs in the Commission’s efforts over the years to adapt and rationalise the EDP. The legislative basis is sound and is generally supported by clear internal rules and guidelines. What has been lacking is consistency and transparency in the application of those rules, they say; the Commission does not adequately record its underlying assumptions or share its surveillance findings for the greater benefit of all Member States. In recent statements, the Commission has acknowledged these shortcomings and indicated that it is prepared to make the necessary improvements.

The auditors have made recommendations to two Commission departments: Eurostat and DG Economic and Financial Affairs. They say Eurostat should:

• enhance its quality assessment procedures and better document its work; 
• assess Member States’ own control systems; 
• improve the effectiveness of its on-the-spot verifications;
• fully use its powers to ensure that Member States implement follow-up actions; 
• publicise all advice and guidance to Member States;
• and better document its internal procedures and criteria for setting reservations or making amendments to data.

DG Economic and Financial Affairs, which assesses the situation in the Member States, should:

• apply clear definitions, disclosing all calculation and assessment data;
• promote national fiscal councils to review the national data used; 
• focus closely on the reduction of government debt, especially in heavily-indebted Member States;
• strengthen its monitoring of the implementation of structural reforms, ensuring that Member States meet their commitments;
• more strictly enforce the rules on Member States’ reporting; 
• where appropriate, recommend that the Council take tougher action and impose sanctions

Notes to Editors

The Treaty on the Functioning of the European Union establishes it as a basic rule of budgetary policy that Member States must avoid excessive government deficits. Accordingly, where the reference values for deficit and debt are exceeded, a corrective mechanism may be initiated against the Member State concerned. This mechanism, the excessive deficit procedure, is a key element of the EU’s economic governance framework.

The Commission’s role in implementing the excessive deficit procedure is to check the quality of the data reported by each Member State, to assess whether the reference thresholds have been breached, or risk being breached, and on this basis to address opinions and recommendations to the Council to act accordingly. The Council then decides, based on the Treaty provisions, whether or not to adopt the Commission recommendations.

Member States placed under an excessive deficit procedure are given recommendations to remedy the situation, including a deadline by which to correct the situation, a path for correction and an annual fiscal effort to be delivered. The Commission monitors that Member State’s implementation of corrective measures and reports its findings to the Council. The Council, on the basis of Commission proposals, takes further action as appropriate (lifting the procedure, extending the deadline, setting new targets or imposing sanctions). 

Special Report No 10/2016 “Further improvements needed to ensure effective implementation of the excessive deficit procedure” is available in 23 EU languages.

The purpose of this press release is to give the main messages of the special report adopted by the European Court of Auditors. The full report is on www.eca.europa.eu