Grabbing a six-pack

Amid the ongoing Greek and eurozone debt crisis, MEPs and member states are trying to agree on a set of proposals for enhanced 'economic governance' in the eurozone. The aim: never again.

MEPs will vote on the proposals tomorrow, but it looks like they're not 100% satisfied with member states' offer and may therefore adopt only part of the compromise texts agreed with the Hungarian Presidency. According to UK Lib Dem MEP Sharon Bowles - who chairs the European Parliament's Economic and Monetary Affairs Committee - MEPs will "keep the door open to a final vote in July, so the Council can come back with an improved offer."

The whole discussion has been somewhat lost in the Greek saga, but here's our take. The proposal involves the so-called "six pack", which includes:

- New rules on how member states can plan and calculate their budget (including statistics and forecasts for budget planning, known as “budgetary frameworks”. This involves all EU member states, but the UK has an opt-out from “numerical fiscal rules”.

- Stronger surveillance of EU budgets, including sanctions on member states that manipulate statistics

- Stronger sanctions for member states that break the EU's budget rules (within the existing "Excessive Deficit Procedure"). All EU member states will be subject to the Commission's recommendations and warnings on their respective budgets, but the proposed sanctions are for eurozone countries only

- A “European Semester”, which involves member states making their budgets subject to “peer review” from the Commission and other member states. This involves all EU member states, but the UK’s different budget cycle is taken into account (meaning that Britain's pre-budget report is what will be peer reviewed which is public anyway)

- Rules to prevent and correct "macroeconomic imbalances "– this refers to the build up of massive current account deficits or surpluses and involves all EU member states, but stops short of detailing actual sanctions (there’s a specific proposal for that)

- A mechanism for imposing sanctions on countries running excessive macroeconomic imbalances. This applies to eurozone only

Let's look at two of the more contentious issues: will the UK be affected by the proposals and will these measures actually make a difference for the future of the eurozone?

First, Britain's involvement. The lastest proposal from the EP seems pretty harmless for the UK:

- Sanctions for breaches of EU budget rules and for excessive macroeconomic imbalances are for eurozone countries only;

- The European Parliament’s proposal to “leave the door open” for non-eurozone countries willing to sign up to the sanctions mechanisms has been scrapped in the latest compromise text;

- The UK’s different budgetary year is taken into account for the submission of budget guidelines, stability and convergence plans, etc.;

- Only the UK among non-eurozone countries benefits from a special opt-out on the country-specific “numerical fiscal rules” which member states must follow when they try to bring deficit below the SGP thresholds.

So what about the package as a whole? Well, it's not going to change the world. The two major proposals are:

Budget deficit rules and accompanied sanctions: The rationale here is to beef up the sanctions imposed on member states for ignoring the eurozone's fiscal rules. It's hard to argue against this on practical grounds. As we all know, the original Stability & Growth pact (SGP) was blatantly ignored (by Germany and France first) and Europe needs fiscal discipline. Will this new arrangement be any different? Much of the new arrangement is a mere copy of the SGP. However, under the new package sanctions could be imposed on eurozone countries at an earlier stage, if they ignore recommendations from the Council.

Macro-economic imbalances and accompanied sanctions: This is a tricky one. The principal is correct - fiscal discipline alone is not a sufficient solution to the eurozone crisis. The imbalances in the eurozone ultimately stem from huge competitiveness gaps between countries. But how in the world do you actually measure such imbalances - and more importantly, how do you make macroeconomic imbalances subject to pre-emptive or corrective sanctions.?For example, how do you penalise a country whose productivity falls for various reasons or whose economy suffers from a lack of diversity, which in turn stores up imbalances?

Of course, there's also the question of democratic legitimacy. Will electorates and national parliaments accept having some potentially important decisions on spending and tax being subject to supranational rules, rather than votes in elected popular chambers?

But another key question is, will these proposals actually do that much to stamp out the huge tensions and weaknesses we today see in the eurozone?

The answer is probably no.