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The European Central Bank has urged Brussels to toughen up its sanctions procedure against governments who persistently fall foul of its economic rules, as it noted that over 90 per cent of reform recommendations had been ignored by member states last year.
Commenting on the European Commission’s latest verdicts on the spending plans and economic health of its member states, the ECB highlighted that a record number of member states were found to have “excessive imbalances” in 2016 for the second consecutive year (Italy, Cyprus, Portugal, France, Bulgaria and Croatia).
The EU set up its tougher “macroeconomic imbalances” procedure in the wake of its sovereign debt crisis in 2011 to help spot and remedy developments including rising current account deficits and budgetary gaps within the eurozone.
But despite the findings from last year, Brussels decided not to escalate its sanctions procedures on any member state, prompting the ECB to repeat calls for the Commission to get tougher:
The use of such tools is desirable not only in order to increase the economic prospects of the relevant country itself, but also to help facilitate economic adjustment processes inside the euro area and reduce euro area-wide vulnerabilities. It is thus in the interest of the euro area as a whole.
ECB president Mario Draghi has long urged governments to pick up the baton to support growth through the implementation of growth and productivity enhancing economic reforms.
For all the relatively benign economic conditions in the eurozone over the last year – where growth is rising and unemployment has declined – the ECB found more than 90 per cent of the Commission’s recommendations had not been “substantially addressed” by member states.
Of the roster of reforms, only two out of 90 were “substantially implemented” while none had been take on board in full.
The ECB suggested Brussels should use the full range of tools within its sanctions procedure – which includes hitting countries with fines – to force greater compliance with its recommendations.
Measures such as freeing up labour and product markets were needed “to address major vulnerabilities that continue to exist in many euro area countries and the need to increase resilience”, said the central bank.
“The poor track records of countries in this regard suggest that policy commitments made by Member States in their National Reform Programmes and repeated calls by the Commission for decisive action are insufficient to evidence and enforce reform.”
*This article has been amended to state that Croatia and not Hungary was named in the excessive deficit procedure.