The time has arrived where we must understand the realities of the dark forces amongst us.
From Part 1, "Market turbulence, employment and social unrest: Trends and outlook" of *World of Work Report 2011: Making markets work for jobs* by International Labour Organization.
Box 1.1 European financial safety measures and recovery prospects [between pages 3 and 4]
In order to prevent a sovereign default of one of their member countries, EcoFin – the Council of European Economics and Finance Ministers – together with the IMF undertook some short-term support measures to maintain sovereign solvency and to prevent high long-term interest rates from choking off the recovery underway in the euro area:
Two temporary funding facilities have been set up, the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM), which will together provide a financial safety net of up to €750 billion. By mid-2013, these temporary facilities are planned to be replaced by the European Stability Mechanism (ESM).
The Competitiveness Pact – or ‘Euro-Plus’ Pact – intends to accelerate convergence among member countries in order to avoid a further divergence of economic fundamentals that may threaten the cohesion of the entire currency area.
On top of that, In September 2011 the European Parliament approved a bundle of six laws – the so-called ‘six pack’ reforms – designed to avert future debt crises by tightening European Union scrutiny on national budgets by introducing swift penalties for states that do not comply with rules.
Three of the six texts in the package focus on budgets, two set up a new alert and sanctions system for economic imbalances, and the sixth sets out common standards for national accounts:
Under the amendments of regulation 1466/97 on budgetary and economic surveillance, and as part of the ‘European Semester’ (a revamped timetable for budgetmaking introduced in 2011), national budget plans will now be sent first to the European Commission in April, and then to the European Council in June and July, before they can be finalized for the following year.
Also, from 2012 onwards, countries will not be allowed to increase their spending by more than their average GDP growth over a given period. If countries fail to meet these requirements and take action seven months after the Commission’s warning, the latter will be able to levy a financial penalty of at least 0.2% of GDP on the government.
Under the amendments of regulation 1467/97 on the excessive deficit procedure, from now on, countries that are in breach of the 60 per cent debt limit will have to reduce their excess debt by at least 0.5 per cent of GDP on average over three years.
Countries can nevertheless avoid the excessive deficit procedure and sanctions if their excess debt is racked up because of pension costs or other essential economic reforms.
Under the new Regulation on fines for deficit countries, countries that flout their medium-term objectives, or the European Union’s debt and deficit limits, can be fined between 0.2 per cent and 0.5 per cent of the previous year’s GDP (as it was the case with Greece).
New regulation setting up a monitoring system for “imbalances”, with the European Commission entitled to conduct in-depth reviews of countries that cross the thresholds for public and private indebtedness, house prices, unemployment, current account balance, real effective exchange rates etc. If “excessive” imbalances exist, the Commission will ask the government to submit a corrective action plan. If after six months and two warnings no progress has been made, the country can be fined 0.1 per cent of its GDP.
Regulation on sanctions for excessive imbalances: after two warnings, countries that fail to abide by the Commission’s recommendations will be subject of a fine of 0.1 per cent of their GDP.
New directive setting statistical and budgetary standards: state accounts should be published monthly, regional accounts quarterly; debt and deficit limits should be written into law (except in the UK); budget planning should be done over three years; independent auditors should check all government accounts. This will be applied from 2014 onwards.