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.
In addition to the new rules on economic governance, the Commission on 23 November 2011 proposed two draft Regulations to enhance the coordination and surveillance of budgetary processes for all euro-area Member States, and especially for those countries that have excessive deficits, that are experiencing or are at serious risk of financial instability, or that are under a financial assistance programme.
>> 23/11/2011. Economic governance: Commission proposes two new Regulations to further strengthen budgetary surveillance in the euro area
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 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.
In the past, the EU institutions discussed economic policies in the spring and examined fiscal policies and developments separately in the autumn. But in 2010, a new approach towards economic surveillance and a new policy-making timetable was agreed. 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 sector issues – are included.
The new approach was put into practice for the first time during the first half of 2011, the first 'European semester'. EU-level discussions on fiscal policy, macroeconomic imbalances, financial sector issues, and growth-enhancing structural reforms will now always take place jointly during the European semester and before governments draw up their draft budgets and submit them to national parliamentary debate in the second half of the year (the 'national semester').
This 'upstream' policy coordination should make the implementation of policy guidance more effective and help embed the EU dimension in national policy-making. The annual cycle begins with the Commission's Annual Growth Survey, which gives broad guidance on priority actions to be taken at EU and national level. Member States then submit Stability or Convergence Programmes on their fiscal plans and National Reform Programmes on structural reforms and measures to boost growth and jobs.
The Commission assesses these reports based on an integrated analysis covering fiscal, macroeconomic, and structural policies and on that basis proposes concrete policy recommendations for each country. The June European Council discusses the recommendations and the Council adopts them.
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.