Economic and monetary policy

INTRODUCTION

The Treaty of Lisbon strengthens the role held by the Commission in the economic policy of the European Union (EU). In particular, the Commission acquires greater powers of supervision in order to ensure that Member States comply with European requirements.

Furthermore, the Treaty of Lisbon improves the economic governance of the EU by strengthening the EU’s monetary policy in particular.

EU economic policy provides that Member States’ economic policies should be geared towards common objectives. It also defines a monetary policy common to all Member States, the principal objective of which is to maintain price stability.

Furthermore, the Member States in the euro area, namely those which have adopted the euro as a single currency, also have a more detailed monetary policy specific to the euro.

ECONOMIC POLICY

EU economic policy is based on two types of commitment on the part of Member States:

• the broad guidelines for economic policies (BGEPs): the BGEPs take the form of recommendations adopted by the Council. Their objective is to harmonise the economic policies of the Member States around joint objectives;
• the stability and growth pact : the objective of this pact is to control Member States’ public deficits. Member States are required to comply with maximum thresholds concerning public debt and central government deficit.

Compliance with the BGEPs and the public deficit thresholds is the subject of supervision carried out by the Commission and the Council. The Treaty of Lisbon further strengthens the supervisory role of the Commission. The latter is henceforth able to address warnings directly to Member States when it considers that they have not met their commitments. Previously, it could only submit a request to the Council in this respect.

When such a warning is addressed by the Commission, the Council may then adopt a recommendation addressed to the Member State. The Treaty of Lisbon introduces two clarifications in this area:

• henceforth the Member State concerned cannot take part in the vote on any recommendation which might be addressed to it;
• if the Member State concerned is in the euro area, only Member States in the euro area may take part in the vote on any recommendation.

MONETARY POLICY

The Treaty of Lisbon does not significantly change the monetary policy common to all Member States.

The main innovation concerns the formal recognition of the European Central Bank (ECB) as an EU institution.

Furthermore, the powers of the European Parliament are strengthened with regard to amending the statutes of the ECB. Such amendments henceforth rely on the ordinary legislative procedure.

MONETARY POLICY SPECIFIC TO THOSE MEMBER STATES USING THE EURO AS CURRENCY

The Treaty of Lisbon makes more significant changes with regard to the monetary policy specific to the euro area.

First, the Treaty of Lisbon confirms the exclusive competence of the EU in monetary policy matters for Member States which have adopted the euro (Article 3 of the Treaty on the Functioning of the EU).

The Treaty of Lisbon also confirms for the first time the existence of Eurogroup. Eurogroup’s objective is to increase the growth of the euro area through closer cooperation between Member States.

Furthermore, the Member States in the euro area shall acquire decisional autonomy for certain measures which concern them directly. Thus, Article 136 of the Treaty on the Functioning of the EU specifies that only euro area States may participate in votes on measures with the particular aim of:

• coordinating and monitoring the budgetary discipline of Member States using the euro as their currency;
• drafting guidelines on economic policies specific to the euro and compatible with the BGEPs.

Lastly, the Treaty of Lisbon offers Member States which have adopted the euro the option of establishing unified representation of the euro area within international financial institutions. In addition, only Member States in the euro area will be able to vote on the positions that the Union adopts in international fora on issues relating to economic and monetary Union.

Last updated: 18.06.2010