As the sovereign debt crisis threatens the stability of the single currency, the European Commission (EC) has declared its intention to more closely coordinate European fiscal policy.

 

Shamit Ghosh, head of eGov monitor warned that under the new powers Britain will no longer be able to independently set its own budgets.

 

Mr Ghosh, writing on the Pickled Politics blog, claimed: “Britain can now be forced by ECOFIN to change its own budget and we do not have a veto – thanks to the Lisbon Treaty. In effect, we have lost our economic sovereignty.”

 

It is a significant claim which merits investigation. Full Fact analysed the EC proposals and spoke to the experts to establish the veracity of Mr Ghosh’s claim.

Spurred by the crisis in Greece, and with fears over the large deficit problems of Euro area states like Spain and Portugal, the EC released a communication last week which aimed to tighten up the economic governance of the European Union (EU).

 

These proposals come alongside the announcement of a £645 billion stabilisation package for the Euro area, but are separate from it.

 

The key aspect of the proposals to which Mr Ghosh refers are for closer budgetary surveillance of European member states. The EC calls for national fiscal policy to better reflect the priorities of EU budgetary surveillance, and it suggests taking measures to ensure that EU states meet existing commitments for budgetary discipline.

 

In addition to existing surveillance under the Stability and Growth Pact (SGP) the EC propose a system of early peer-review of national budgets. This would, they argue, help member states identify earlier possible imbalances in national economies and how they may affect the stability of the EU as a whole.

First of all, what is clear is that nothing has changed yet. The EC announced proposals which will now be drafted as legislation. They will have to be approved by all member states before becoming law, which is far from certain.

 

Although member states’ national budgets could come to be peer reviewed, it does not then follow that the UK fiscal policy will be subject to any binding action.

 

Simon Tilford, chief economist at the Centre for European Reform told Full Fact: “It is possible that the UK will be asked to participate in the peer review process but it won’t be anything binding.

 

“The European Commission is going to step up its scrutiny of all member states’ management of their public finances but in terms of anything binding and proscriptive it’s only going to be applied to Euro area states.”

 

Indeed, the EC communication itself makes clear that its proposals are focused on Eurozone members. It states that if there are concerns about the budgetary policies of a member state then the “Council, with only euro-area Members voting, would invite the Member State(s) concerned to take the necessary action to remedy the situation.”

 

It also appears that the scrutiny Britain will be subjected to is simply an extension of existing fiscal cooperation.

 

The EU already has budgetary surveillance of its member states. Under the SGP of which the UK has been a part since 1997, all countries submit yearly stability plans for European scrutiny. Seeking to ensure fiscal responsibility, a target that no country is supposed to run a budget deficit of more than three per cent was set.

 

Now it appears that the EC intend to toughen up the enforcement of the SGP guidelines, warning that, “recurrent breaches of the Pact should be subjected to a more expeditious treatment.”

 

However, the fiscal scrutiny under the SGP has so far been viewed as toothless. In 2004, European finance ministers turned a blind eye to the fact that both France and Germany were in breach of the three per cent deficit target. Although they were criticised by the EC, no action was taken.

Overall, the EC has announced some significant steps to ensure closer fiscal cooperation between Eurozone member states. However, while some of the proposals will involve the participation of those outside of the Euro, any binding or proscriptive measures on national budgets are likely to be restricted to those in the single currency.

 

The UK is already committed a level of fiscal scrutiny under the terms of the SGP agreed in 1997. Mr Ghosh’s claim that these proposals will end UK economic sovereignty therefore appears exaggerated.

 

Anthony Zacharzewski of the Democratic Society was dismissive of Mr Ghosh’s claim. He said: “The fundamental point is that today, the EU has no mandate, discretion or control – no sovereignty – over the fiscal decisions of the UK Parliament, and under these proposals it still won’t have.”

 

While the evidence does not appear to support Mr Ghosh’s claim that the UK’s fiscal independence will be affected, Sarah Gaskell from Open Europe pointed out that this could change. She told Full Fact: “While it remains to be seen whether or not these proposals will elicit the required level of support – it is important that the UK Government does not sit back and allow proposals to take shape without their input, or they may find EU economic cooperation moving further than they expect or want.”