Economic governance refers to the system of institutions and procedures established with a view to achieving Union objectives in the economic field, 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 began in 2008 showed that the EU needed a model of economic governance 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.
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’.
Article 3 of the TEU states that ‘[the Union] shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress [...]’.
Articles 2, 5 and 119 TFEU constitute the basis for economic 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 policy recommendations, both general (Broad Economic Policy Guidelines) and country-specific, and in Article 126, which establishes the procedure to be followed in case of excessive government deficits (4.2.1).
Articles 136 to 138 lay 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).
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, macro-financial supervision and investments.
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 extent to which the cooperation agreement involved was binding:
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 in order to address problems and boost growth and job creation in future. To this end, the system of bodies and procedures for 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)), in 2013 (with the adoption of the ‘two-pack’), in 2014 (with the setting-up of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM)), and in 2015 (with the establishment of the European Fund for Strategic Investments (EFSI)).
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 were previously 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:
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 budgetary plans (DBPs) for the upcoming year and submit them to national parliamentary debate in the second half of the year (the ‘national semester’). Before finalising the budgets, euro area Member States submit their DBPs to the Commission, which provides its opinion, and to the Eurogroup, which assesses them.
The European Council sets coordinated political priorities and issues guidelines at the highest level. The Council adopts recommendations and decisions, on proposals by the Commission. The Commission is in charge of drafting recommendations and decisions and of assessing their implementation. The Member States are in charge of national reporting, information exchanges and the implementation of the recommendations and decisions adopted by the 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, and governs the ESM. The ECB participates in the Eurogroup’s deliberations in matters pertaining to monetary or exchange rate policy. The Economic and Financial Committee (EFC) delivers opinions and prepares the work of the Council, as do the Economic Policy Committee (EPC) and the Eurogroup Working Group.
With the entry into force of the Lisbon Treaty, Parliament is now a co-legislator as regards the setting of 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 Union institutions, in particular Parliament, the Council and the Commission, and 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 the 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 the involvement of national parliaments through annual meetings with members of their relevant committees. 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 transparency and ownership of, and accountability on, the decisions taken.