Reinforcing economic policy coordination
This Communication presents the reforms envisaged by the Commission in order to improve economic policy coordination. These reforms include increased surveillance of Member States’ budgetary policies, the establishment of a European Semester and measures specific to the euro area.
Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions of 12 May 2010 - Reinforcing economic policy coordination [COM(2010) 250 - Not published in the Official Journal].
In this Communication, the Commission assesses the consequences of the global economic crisis of 2009. It considers that it has become fundamentally important for the European Union (EU) to reinforce the coordination of Member States’ economic policies.
The global economic crisis has highlighted certain weaknesses of Economic and Monetary Union:
- the fiscal imbalances of Member States, in particular the high level of their public debt, which can quickly lead to crisis situations;
- the interdependence of Member States’ economies;
- the lack of policy coordination at EU level;
- the macroeconomic and financial imbalances specific to the euro area which have aggravated the latter’s economic situation.
Faced with these problems, the Commission intends to improve Member States’ economic surveillance in order to avoid excessive budget deficits. It also proposes to broaden surveillance of macroeconomic developments and to reinforce the economic governance of the euro area.
This Communication therefore sets out three main objectives:
- reinforcing compliance with the Stability and Growth Pact;
- creating a European Semester;
- establishing a framework for crisis management in the euro area.
Stability and Growth Pact
The Stability and Growth Pact is a pact by which Member States undertake to control their public deficit in order to avoid fiscal imbalances. The Pact has:
- a preventive part which is based on the Stability and Convergence Programmes: every year, Member States submit these programmes to the Commission and the Council. The Stability and Convergence Programmes establish the budgetary objectives and economic prospects of each Member State;
- a corrective part which is based on the excessive deficit procedure: recommendations, or indeed sanctions, may be addressed to a Member State if it does not comply with the Stability and Growth Pact.
The Commission therefore proposes to reinforce the preventive and corrective parts of the Pact by placing a greater focus on debt. For example, the Stability and Convergence Programmes might incorporate new objectives concerning the sustainability of public finances. The Commission also proposes to take better account of the interplay between public debt and budget deficits in the excessive deficit procedure.
In addition, the excessive deficit procedures should be accelerated in order to provide Member States with recommendations as soon as possible, thus enabling them to tackle emerging fiscal imbalances.
The Commission proposes to establish an economic European Semester at the start of each year. The aim of the European Semester would be to reinforce Member States’ policy coordination and economic surveillance.
At the start of the European Semester, the European Council shall identify the main economic challenges and provide Member States with strategic guidance on policies. This information will then be used by Member States as a basis for preparing their Stability and Convergence Programmes and their National Reform Programmes.
In full respect of national parliaments’ schedules, the European Semester would allow these programmes to be presented and examined at a time when important budgetary decisions are still in a preparatory phase at the national level.
Measures specific to the euro area
The interdependence of Member States’ economies is even more important in the euro area on account of the single currency. The Commission therefore proposes increased economic surveillance for Member States which have adopted the euro.
A scoreboard might be established for each Member State. It would encompass a set of indicators such as the level of public debt, credit prices, developments in current accounts, productivity and employment. These scoreboards would be accompanied by a qualitative assessment. They would then be used as the basis for recommendations concerning:
- the field of revenue and expenditure;
- the functioning of labour, products, services and financial markets.
Finally, the Commission proposes to establish a framework for crisis management to guarantee financial stability in the euro area. Such a framework would take the form of lending to euro-area countries in financial difficulties. The loans would be subject to compliance with a programme setting out the measures to be taken by Member States in order to consolidate their budgets.
The Commission will submit several legislative proposals in order to implement the reforms presented in this Communication.