On 13 July 2015, the Council of the European Union (‘Council’) imposed a fine of Euro 18.93 million on Spain for the manipulation of deficit and debt data concerning the accounting, recording and reporting of the expenditure of the Comunidad Autonoma Valenciana.
This is the first investigation launched by the Commission on the basis of Regulation (EU) No 1173/2011 concerning the effective enforcement of budgetary surveillance in the Euro area.
The significance of the case is that both the Commission and the Council are serious about implementing the new legal framework on economic governance in the Eurozone.
National governments, regions, provinces and local authorities will not be able to hide from the full glare of transparent and complete accounting.
The legal framework
Regulation (EU) No 1173/2011 is part of the so-‐ called ‘Six-‐Pack’ of laws (five Regulations and one Directive) 15 designed to improve economic
governance in the EU. Some of these measures implement Article 121 TFEU concerning the multilateral surveillance procedure, other measures concern the Excessive Deficit Procedure (EDP) within the meaning of Article 126 TFEU. The Six-‐Pack legislative provisions entered into force on 13 December 2011.
The Six-‐Pack amends the Stability and Growth Pact (SGP), and its aim is to ensure that countries in the EU pursue sound public finances and coordinate their fiscal policies. The new provisions strengthen both the preventive and the corrective arm, especially those that provide for enforcement measures in the Euro area.16
The preventive arm provides for multilateral surveillance based on Article 121 TFEU in order to ensure sound public finances. 17 When a Member State of the Euro area does not take appropriate adjustment actions, the Council may impose sanctions amounting up to 0.2% of that Member State’s GDP for the previous year.18 The new rules also provide for sanctions in case of manipulation of debt or deficit data.19
The Excessive Deficit Procedure (EDP) 20 is designed to prevent excessive deficits and to ensure prompt correction where they occur. The EDP is based on Article 126 TFEU and Protocol (No 12), annexed to the Treaty, the amended Regulation (EC) No 1467/97 and the new Regulation (EU) No 1173/2011.
Article 6(1) of Regulation (EU) 1173/2011 provides that if a Member State ‘has not taken effective action to correct its excessive deficit, the Commission shall, within 20 days of that decision, recommend that the Council, by a further decision, impose a fine, amounting to 0,2 % of the Member State’s GDP in the preceding year’.
Any ‘decision imposing a fine shall be deemed to be adopted by the Council unless it decides by a qualified majority to reject the Commission’s recommendation within 10 days of the Commission’s adoption thereof’.21
In addition, Regulation (EU) No 472/2013 (part of the so-‐called Two-‐Pack) introduces additional surveillance and monitoring procedures for Euro Area Member States including the possibility for the Commission to submit autonomous recommendations to Member States with excessive deficits.
Regulation (EU) No 1173/2011 on the effective enforcement of budgetary surveillance in the Eurozone provides, that:
The Council, acting on a recommendation by the Commission, may decide to impose a fine on a Member State that intentionally or by serious negligence misrepresents deficit and debt data relevant for the application of Articles 121 or 126 TFEU, or for the application of the Protocol on the excessive deficit procedure annexed to the TEU and to the TFEU.22
Regulation (EU) No 1173/2011 empowers the Commission to look deeper into the quality of Member States’ statistics for EDP purposes. On the basis of this Regulation, the Commission is entitled to launch specific investigations if there are serious indications of a misrepresentation.
Member States are obliged to report their annual deficit and debt data to the Commission in full compliance with European statistical rules and procedures (European System of Accounts, ESA).
Article 16 of Regulation (EC) No 479/200923 on the application of protocol on the excessive deficit procedure provides: