Excessive deficit procedures and derivatives on the table

Addressing the public budget deficit of a member state and regulating after-trade operations with financial derivatives were discussed at the Ecofin Council on 24 January.

© Fotolia

The Council assessed the action taken by Hungary in order to correct its excessive government deficit. Five member states - Belgium, Cyprus, Malta, Poland and Hungary - have been up for a Commission review of their efforts to curb fiscal imbalances. The first four countries were found to have done the necessary to stabilise their public debt. Hungary's efforts, however, have been insufficient to ensure a sustainable correction of its excessive deficit. Continued failure to comply with the Council's recommendations could lead to the suspension of financing from the cohesion fund.

Under the EU's economic governance policy, member states have signed up to respecting two criteria: public debt may not exceed 60% of GDP, and public deficits must stay below 3% of GDP.

The Council took major steps towards delivering final agreement on the draft regulation aimed at increasing transparency and enhancing security in the over-the-counter (OTC) derivatives market. OTCs are not traded on an exchange, but instead privately negotiated between two counterparties, for example a bank and an enterprise (or two banks).

Transparency in the market will be enhanced, as derivative contracts will have to be reported to trade repositories (i.e. central data centres). And the clearing of standardised OTC's at central clearing houses (the so-called central counterparties) will reduce the risk of contagion in connection with, for example, the default of a party to a contract.

Negotiations with the European Parliament will continue shortly, with a view to obtaining a rapid agreement and adoption of the regulation in first reading.

More information:
Press release (pdf)
Press release on Hungary's excessive deficit procedure (pdf)
Press release on derivatives (pdf)
Public debate on derivatives, part I
Public debate on derivatives, part II
Press conference webcast