Economic governance

Economic governance refers to the system of institutions and procedures established with a view to achieving Union objectives in the economic area, namely the coordination of economic policies to promote economic and social progress for the EU and its citizens.
The financial, fiscal and economic crises that originated in 2008 showed that the EU needed a model of economic governance that was more effective than the economic and fiscal coordination or ad hoc responses in force until then. Recent developments in the area of economic governance include both the overhaul of existing provisions and the adoption of new ones, establishing reinforced coordination and surveillance of both fiscal and macroeconomic policies, and the setting up of a robust framework for the management of financial crises.

Legal basis

  • Article 3 of the Treaty on European Union (TEU);
  • Articles 2-5, 119-144 and 282-284 of the Treaty on the Functioning of the European Union (TFEU);
  • Protocols annexed to the TFEU: Protocol No 12 on the excessive deficit procedure, Protocol No 13 on the convergence criteria and Protocol No 14 on the Euro Group.


a.Treaty provisions

The preamble to the TEU states that Member States are ‘resolved to achieve the strengthening and the convergence of their economies and to establish an economic and monetary union’.

Articles 2, 5 and 119 TFEU constitute the basis for coordination: they require the Member States to view their economic policies as a matter of common concern and to coordinate them closely. The areas and forms of coordination are specified in Article 121,which lays down the procedure related to the general (Broad Economic Policy Guidelines) and specific policy recommendations, and Article 126, which establishes the procedure to be followed in case of excessive government deficits (4.2.1).

Articles 136-138 lays down specific provisions for those Member States whose currency is the euro, requiring them to strengthen their coordination and surveillance of budgetary discipline and economic policies.

Furthermore, Title IX on employment requires that employment policies be coordinated and consistent with the economic policies as defined in the broad guidelines (Article 146) (5.10.3).

b.Areas subject to economic governance

The financial, fiscal and economic crisis that originated in 2008 showed that financial, fiscal and macroeconomic imbalances are strictly interrelated, not only within the national boundaries, but also at EU level, and even more so for countries in the euro area. Therefore, the reinforced economic governance system, which was set up in 2011 and is still under further development, refers to several economic areas, including fiscal policies, macroeconomic issues, crisis management and macrofinancial supervision.


a.Economic coordination until 2011

Until 2011 economic policy coordination was mainly based on consensus, without legally enforceable rules, except in the fiscal policy framework defined under the Stability and Growth Pact (SGP) (4.2.1). The scope of economic coordination was wide, and different forms of cooperation could be implemented, depending on the binding degree of the cooperation agreement:

  • Cooperation by exchange of information, e.g. the Macroeconomic Dialogue established at the Cologne European Council in 1999;
  • Coordination as a crisis management tool, e.g. the setting-up of the European Financial Stability Mechanism in May 2010;
  • The open method of coordination, by which the Member States set common targets but determined themselves how to achieve them (e.g. the Lisbon Strategy established in March 2000, with the European leaders encouraging the Member States to set benchmarks, identify best practices and implement relevant policies);
  • Delegation of a policy, whereby the entire authority over a policy could be delegated to a single institution (examples include monetary policy (4.1.3) and competition policy (3.2.1), delegated to the European Central Bank (ECB) and the Commission respectively).

b.Economic governance since 2011

The crisis exposed fundamental problems and unsustainable trends in many European countries, and made it clear that the EU’s economies are strictly interdependent. Greater economic policy coordination across the EU was considered necessary to address problems and to boost growth and job creation in future. To this end, the system of bodies and procedures on economic coordination in place in the EU was revised and reinforced in 2011 (with the adoption of the ‘six-pack’), in 2012 (with proposals on the ‘banking union’ and the setting-up of the European Stability Mechanism (ESM)), and in 2013 (with the adoption of the ‘two-pack’ and other legislative proposals, which are still in the process of being adopted).

1.Reinforced economic and fiscal surveillance, and coordination thereof under the European Semester

Reinforced governance includes: a new synchronised working model — the European Semester — to discuss and coordinate economic and budgetary priorities; tighter EU surveillance of fiscal policies as part of the Stability and Growth Pact (4.2.1); new tools to tackle macroeconomic imbalances (4.2.2); and new instruments to deal with Member States in financial distress (4.2.3).

The European Semester is a six-month period each year during which the Member States’ budgetary, macroeconomic and structural policies are coordinated so as to allow Member States to take EU considerations into account at an early stage of their national budgetary processes and in other aspects of economic policymaking. The aim is to ensure that all policies are analysed and assessed together, and that policy areas which previously were not systematically covered by economic surveillance — such as macroeconomic imbalance and financial issues — are included. The key stages in the European Semester are as follows:

  • In late autumn the Commission presents the Annual Growth Survey (AGS), which sets out what it considers to be the EU’s priorities for the upcoming year, in terms of economic, budgetary and labour policies and of other reforms needed to boost growth and employment. The Commission also publishes the Alert Mechanism Report (AMR), which identifies those Member States with potential macroeconomic imbalances.
  • The spring European Council gives strategic guidance on the priorities to be pursued during the Semester cycle. It explicitly invites the Member States to take account of these priorities in the drafting of their Stability and Convergence Programmes (SCPs) and National Reform Programmes (NRPs), including their National Job Plans.
  • In April the Member States submit their plans for sound public finances (Stability and Convergence Programmes) and for reforms and measures to make progress towards smart, sustainable and inclusive growth (National Reform Programmes). This joint submission allows account to be taken of complementarities and spill-over effects between fiscal and structural policies.
  • In May/June the Commission assesses the NRPs and SCPs as well as the progress made in the Member States towards the targets defined in the Europe 2020 strategy and the correction of macroeconomic imbalances. On the basis of such assessments, the Commission proposes country-specific recommendations (CSRs), which are then discussed by different formations of the Council.
  • In June/July the European Council endorses the CSRs, which are officially adopted by the Council in July, closing the annual cycle of the European Semester at the EU level.

The first European Semester was put into practice in 2011. EU-level discussions on fiscal policy, macroeconomic imbalances, financial sector issues and growth-enhancing structural reforms take place jointly during the European Semester, before governments draw up their draft budgets and submit them to national parliamentary debate in the second half of the year (the ‘national semester’).

2.In addition, a complementary agenda with additional reforms, called the Euro Plus Pact, was agreed in March 2011 among euro area Member States, as well as among six non-euro area countries that chose to sign up: Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania. It focuses on four areas: competitiveness, employment, sustainability of public finances and the reinforcement of financial stability. All 23 signatories are committed to implementing the reforms in detail. The remaining five Member States are free to sign up if they wish. The Euro Plus Pact is fully embedded in the new economic governance framework, and the commitments made therein are included in the National Reform Programmes of the Member States concerned.
3.By way of action to repair the financial sector, the EU has established new rules, and set up European supervisory authorities (ESAs), to prevent crises and make sure that financial players are properly regulated and supervised. Further work is under way, in particular to ensure that Europe’s banks have sufficient capital reserves to enable them to withstand any future shocks to the financial system, so that they can continue to function and provide credit to households and businesses.


The European Council sets coordinated political priorities and gives guidelines at the highest level. The Member States are in charge of national reporting, information exchanges and the implementation of the recommendations and decisions adopted by the Ecofin Council. The Eurogroup (comprising the finance ministers of the Member States that have introduced the euro) discusses matters concerning the European Monetary Union (EMU), usually before the Ecofin Council meeting. The ECB participates in the Group’s deliberations in matters pertaining to monetary or exchange rate policy. The Commission is in charge of reporting, preparing and making recommendations, and of following up the implementation of decisions. The Economic and Financial Committee (EFC) gives opinions and prepares the Council’s work, as do the Economic Policy Committee (EPC) and the Eurogroup Working Group, which also contribute to the Commission’s work.

Role of the European Parliament

With the entry into force of the Lisbon Treaty, Parliament is a co-legislator when setting rules for multilateral surveillance (Article 121(6) TFEU).

The legislative acts related to economic governance established the Economic Dialogue. In order to enhance the dialogue between the institutions of the Union, in particular Parliament, the Council and the Commission, and to ensure greater transparency and accountability, Parliament’s competent committee may invite the President of the Council, the Commission, the President of the European Council or the President of the Eurogroup to discuss their respective decisions or present their activities in the context of the European Semester. In the framework of this dialogue, Parliament may also offer a Member State that is subject to a Council decision under the excessive deficit procedure or excessive imbalance procedure the opportunity to participate in an exchange of views.

Under the European Semester, Parliament expresses its opinion on the draft AGS in specific resolutions, also taking into account the contributions gathered in a Parliamentary Week meeting on the European Semester with national parliaments held at the beginning of the year. In late autumn, Parliament expresses its opinion on the ongoing European Semester cycle (including CSRs as adopted by the Council), also taking into account the outcomes of a joint meeting with the chairs of the national parliaments’ competent committees.

Parliament promotes involvement of national parliaments through annual meetings with members of the relevant committees of the national parliaments. Furthermore, and in line with the legal and political arrangements of each Member State, national parliaments should be duly involved in the European Semester and in the preparation of stability or convergence programmes and national reform programmes, in order to increase the transparency and ownership of, and accountability on, the decisions taken.

Alice Zoppè