The EU and its Member States have taken a series of important decisions that will strengthen economic and budgetary coordination for the EU as a whole and for the euro area in particular. As a result, the EU’s interdependent economies will be better placed to chart a path to growth and job creation.
The economic and financial crisis has revealed a number of weaknesses in the economic governance of the EU's economic and monetary union. The cornerstone of the EU response is the new set of rules on enhanced EU economic governance which entered into force on 13 December 2011. It has four main components:
Enforcement is strengthened by the expanded use of 'reverse qualified majority' voting. Under this voting system, a Commission recommendation or proposal to the Council is considered adopted unless a qualified majority of Member States votes against it.
The Commission Green Paper on Stability Bonds, published on 23 November 2011, sets out three main options: the full substitution by Stability Bond issuance of national issuance, with joint and several guarantees; the partial substitution by Stability Bond issuance of national issuance, with joint and several guarantees; and the partial substitution by Stability Bond issuance of national issuance, with several but not joint guarantees. The objective of the Green Paper is to have a broad debate on the issues raised.
>> 23/11/2011. Green paper on stability bonds
Member States that are Contracting Parties to the Treaty on Stability, Coordination and Governance in EMU (TSCG), in force since 1 January 2013, will introduce in their national rules a correction mechanism to be triggered automatically in the event of significant observed deviations from the medium-term objective or the adjustment path towards it. With this Communication the European Commission puts forward seven common principles for designing the national correction mechanisms, covering legal status, consistency with the EU framework, activation, nature of the correction in terms of size and timeline, operational instruments, escape clauses, and the role and independence of monitoring institutions.
Developed in 2010, the European Semester represents a new approach towards economic surveillance, including a new policy-making timetable. First put into practice during the first half of 2011, it ensures that EU-level economic policies are analysed and assessed together and are suitably covered by economic surveillance.
To read more about the coordination of economic and fiscal policy planning in the EU go to our Economic Semester page.
To give further impetus to the governance reforms, 23 Member States, including six outside the euro-area (Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania), signed the Euro Plus Pact in March 2011. The Pact commits signatories to even stronger economic coordination for competitiveness and convergence, also in areas of national competence, with concrete goals agreed on and reviewed on a yearly basis by Heads of State or Government. The Euro Plus Pact is integrated into the European semester and the Commission monitors implementation of the commitments.
The Euro Plus Pact builds on the existing framework of economic priorities agreed at EU level under the Europe 2020 strategy for 'smart, sustainable and inclusive' growth. The strategy sets targets in the fields of employment, innovation, climate/energy, education and social inclusion.
Getting Europe back on track also requires a healthy financial sector. The EU, therefore, established a new financial supervision architecture in January 2011. It includes a European Systemic Risk Board (ESRB) for macro-prudential oversight of the financial system, and three European supervisory authorities: the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority. Rules have also been tightened on capital requirements for banks, investment firms and insurance companies, and new rules on remuneration and bonuses will reduce incentives for short-term risk-taking. Bank stress tests have been conducted and the Commission will propose a framework to allow banks to fail in an orderly manner, thus ensuring that taxpayers don’t have to pay for bailouts.
>> European Systemic Risk Board (ESRB)
>> European Financial Stability Facility EFSF
>> European Banking Authority (EBA)
>> European Securities and Markets Authority (ESMA)
>> European Insurance and Occupational Pensions Authority (EIOPA)
>> Directorate-General Internal Market. Information on financial services (banking, insurance, securities, etc.